The collapse of unsecured lender African Bank in 2014 provided a glimpse into the role of systemic risk in the South African financial system. As a consequence of the default of this small bank, at least 10 money market funds broke the buck — more than recorded anywhere in the world as a consequence of a single default. Prudent and decisive action by the South African Reserve Bank and the Treasury ensured no further harm was done to the financial system. Nonetheless, the African Bank episode, which cost South Africans roughly R10bn in total, brought back memories of the global financial crisis of 2007-08 when the insolvency of the US investment bank Lehman Brothers almost caused the collapse of the global financial system and led to the insolvency of the US-based Reserve Primary Fund. What the two episodes have in common is the notion of systemic risk, which regulators abstractly define as "the risk of widespread disruptions to the financial system that result in negative consequenc...
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Subscribe now to unlock this article.
Support BusinessLIVE’s award-winning journalism for R129 per month (digital access only).
There’s never been a more important time to support independent journalism in SA. Our subscription packages now offer an ad-free experience for readers.
Cancel anytime.
Questions? Email helpdesk@businesslive.co.za or call 0860 52 52 00. Got a subscription voucher? Redeem it now.