EDITORIAL: Busisiwe Mkhwebane’s reckless shot at central bank
The public protector’s proposal of how the Bank’s mandate should be revised betrays a disturbing misunderstanding of what it is that central banks can and cannot do
There are several aspects of Public Protector Busisiwe Mkhwebane’s report on the Bankorp/Absa lifeboat that are of grave concern. The most serious of these is her implicit criticism of the role of the Reserve Bank, both as a lender of last resort and as a custodian of monetary policy.
In criticising the bail-out and arguing that this was money that rightfully belonged to the people of SA, Mkhwebane appears to be questioning whether the Bank should have got involved at all in saving Bankorp. But protecting the stability of the financial system is one of the things that central banks do and if the woes of a troubled bank are deemed to pose a risk to the banking system as a whole, it is appropriate to step in.
Bail-outs should be directed towards protecting deposit holders rather than shareholders, who in the event of a bank failure should be the ones to take the hit. Assistance must be transparent. This did not happen in the case of Bankorp, which is one reason several investigations led by judges have found that the lifeboat was illicit.
Mkhwebane’s proposal of how the Bank’s mandate should be revised betrays a disturbing misunderstanding of what it is that central banks can and cannot do.
Section 224 of the Constitution says that the "primary object of the [Reserve Bank] is to protect the value of the currency in the interest of balanced and sustainable economic growth". Her suggestion is that the clause should rather read: "The primary object of the [Reserve Bank] is to promote balanced and sustainable economic growth … whilst ensuring that the socioeconomic wellbeing of the citizens are protected."
Nowhere in her version is the Bank’s crucial role in combating inflation so as to make sure that the rand in people’s pockets maintain their value. That is what monetary policy is supposed to do — and while it can support economic growth, it cannot create it.
For Mkhwebane to storm in at this juncture can only be viewed as a political act in the wider context of a sustained attack by corrupt businesspeople and their political cronies
These are reckless political broadsides aimed at the Bank. In the postapartheid period, the Bank, when acting as lender of last resort, has done so transparently and in the interests of stability. Interest-rate decisions, once the subject of heated exchanges between the ANC’s left-wing allies and the government, are hardly controversial anymore.
For Mkhwebane to storm in at this juncture can only be viewed as a political act in the wider context of a sustained attack by corrupt businesspeople and their political cronies on the Treasury and on SA’s financial regulatory framework. None of this is to say that there wasn’t something wrong with the Bankorp/Absa bail-out.
Apart from the Ciex report, undertaken by bounty hunter Michael Oatley in the early ’90s, the government commissioned two other investigations into the matter. This was after it was agreed that Oatley — a former British spy who did the work in return for a 10% bounty on what was to be recovered — was not someone the government trusted. President Thabo Mbeki commissioned Judge Willem Heath; central bank governor Tito Mboweni commissioned an investigation by Judge Dennis Davis.
Both found the bail-out was illicit. Instead of protecting depositors, it protected shareholders. It was also extended support over a long period, before Bankorp was finally bought by Absa.
Heath concluded, at the time, that to attempt to recover the money from Absa would pose a systemic risk to the banking system. Davis concluded that as the main shareholder of Bankorp had been Sanlam, and that as Absa had paid fair value, the real beneficiary of the bail-out was Sanlam. But as Sanlam had not yet demutualised, Davis concluded that to attempt to recover the money from policyholders was not realistic.
Mkhwebane ignored both these reports and based her own only on the Ciex report. Her motive can only be guessed at.