BANKING AND AUDITING
KHAYA SITHOLE: KPMG auditing scandal illustrates the dangers of concentration
In 2007, the US Federal Reserve Bank in New York released a paper reflecting on market concentration and market stability. The paper referred to a market structure characterised by a few dominant firms and many smaller players. The question was whether the exit of one major player in such a concentrated market would lead to market instability. The South African market system — in particular for the banking and auditing services — replicates this market structure as a few prominent firms dominate, with the rest making up a minor market share. This week, in an Association of Black Securities and Investment Professionals discussion with Reserve Bank deputy governor Kuben Naidoo, we looked at how the Bank dealt with the African Bank curatorship versus the VBS Mutual Bank scenario. In essence, African Bank was regarded as systematically important to the banking system, given its wide range of depositors, who would have been affected had the bank been liquidated. To mitigate this, the Ban...
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