Banks Amendment Bill B17-2014; Financial & Fiscal Commission Amendment Bill [B1-2015]: deliberations

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Finance Standing Committee

22 April 2015
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Committee deliberated on the Banks Amendment Bill [B17-2014] and the Financial and Fiscal Commission Amendment Bill [B1-2015]

Banks Amendment Bill
The Committee wanted to know from the Deputy Governor of the South African Reserve Bank (SARB), in broad terms, where the African Bank matter stood. Secondly, members raised concern about clause 1(d) adding sub-section (j) to section 69(3). Why should funds be sourced only from SARB?  What was the situation in other countries? Was sub-section (j) even necessary at all? If sub-section (j) was kept in the Amendment Bill, would there be an undue obligation on the SARB?

The SARB Deputy Governor said there had been developments within the past 24 hours which strongly indicated that a framework would be finalised within a few days but there was still a need to meet and consult with a few stakeholders.

Members said that the SA Reserve Bank also needed security. Who was supplying this security? Members
said the question was why the banks needed to borrow from central banks. The question was not about liquidity, it was about the behaviour of banks, of reckless lending that put banks at risk.

The Committee would vote on the Bill on "Tuesday week" and it was regarded as a mere formality.     

Financial and Fiscal Commission Amendment Bill
There was only one outstanding issue. Parties had been asked to go back to their caucuses and decide on whether there should be a full-time chairperson of the Board set out in the bill or whether the Minister or President should decide.

The DA said it would reserve its position on the matter.

The ANC felt strongly that the chairperson should be full time, however there should be clear policy guidelines on the roles of the chairperson and the CEO so that the chairperson did not interfere in the CEO‘s work. 

Members raised a number of questions: Given that recent events have shown how chairpersons interfered in the operational side of an organisation's work, the Minister or Board should clarify the specific roles of the chairperson and CEO. Was there a provision in the Bill for the Minister or Board to clarify their respective roles? What was the long term role of the FFC? Was the role envisaged in the Constitution still needed? What was its future role? Was there a term set out for the Chairperson? Members asked what the intention of the object of the Bill was. Could the relationship of a chairperson and a CEO not be captured in the objects of the Bill rather than only reside in the Committee’s Report?

The Chairperson asked for a final version of the bill to be available within 24 hours so that the bill could be voted on in the following week.
 

Meeting report

Banks Amendment Bill B17-2014
The Chairperson said the Committee wanted to know from the Deputy Governor of the SA Reserve Bank, in broad terms, where the African Bank matter stood and secondly, members wanted to raise some concerns around clause 1(d) adding sub-section (j) to section 69(3).

Mr Francois Groepe, Deputy Governor of SARB, said there had been developments within the past 24 hours which strongly indicated that a framework would be finalised within a few days but there was still a need to meet and consult with a few stakeholders.

The Chairperson said the Committee had a concern about  sub-section (j) [Point 3.2(b) in the Memorandum of Objects of the Banks Amendment Bill B17-2014]. Why should funds be sourced only from SARB?  What was the situation in other countries? Was sub-section (j) even necessary at all? If sub-section (j) was in the Amendment Bill, would there be an undue obligation on the SARB?

Mr Groepe said the role of the bank as a lender of last resort to provide emergency liquidity was recognised international practice.  If a bank was placed under curatorship, the bank might be solvent  but experiencing liquidity problems. The central bank would then assist, but the law was strict, that the assistance would only be done against security and the purpose was to minimise risk of public funds being used to bail out a bank. The funding could only be raised from the central bank and SARB was the first creditor that had to be settled.

A Treasury official said the deputy governor had covered why the provision was required. A more important question from the Treasury’s perspective was whether it posed a risk to the fiscus and the taxpayer. He said there were two checks on this. Firstly, it was the Minister’s prerogative to grant power to the curator. The Minister would not grant it if he felt there would be  a loss to the taxpayer and the second was the discretion of SARB to grant funding to the bank under curatorship. He therefore felt that it would not create a potential loss.

Mr D Ross (DA) said that the Reserve Bank also needed security. Who was supplying this security? Was it an outside source like the Public Investment Corporation or was it from additional funding like a reserve fund?

Ms T Tobias (ANC) said she had asked the bank to clarify why the banks needed to borrow from central banks. The question was not about liquidity, it was about the behaviour of banks, of reckless lending that put banks at risk.

Regarding what security was provided, Mr Groepe replied that the bank would have to cede assets like the ‘book’ of the bank, as collateral.

Regarding Ms Tobias’ question, he said there were a number of control measures in place. The central bank had to be in compliance with Basel III for example and was subjected to frequent assessments and underwent peer reviews against international standards. The central bank was best placed to provide liquidity because of its ability to create money  and to provide security or assistance.

The Chairperson said the Committee was informally adopting the Bill. As it was an important Bill, the wording needed to be rechecked. This was to be completed by the afternoon of 24 April and the Committee would vote on the Bill "on Tuesday week".      

He said he had spoken to the Minister about availing himself for the debate for which the tentative dates were the 5 or 6 May.

Financial and Fiscal Commission Amendment Bill [B1-2015]
The Chairperson said there was only one outstanding issue. Parties had been asked to go back to their caucuses and decide whether there should be a full-time chairperson of the Board set out in the Bill or whether the Minister or President should decide.

Dr D George (DA) said the DA would reserve its position on the matter.

Ms Kekana said the ANC felt strongly that the chairperson should be full time.

Ms Tobias said that in taking that decision, the workload was considered and the fact that the FFC worked with all three spheres of government which gave it a broader mandate. Parliament itself preferred that organisations be represented by the chairperson. A full time chairperson would empower the FFC to oversee other important issues of government. However, there should be clear policy guidelines regarding the roles of the chairperson and the CEO so that the chairperson did not interfere in the CEO‘s work. 

The Chairperson added that the role of the Commission emanated from the Constitution. It dealt with all three spheres of government and a wide range of stakeholders. People did not want to see the CEO but wanted the Chairperson present. If there was a strong CEO and not a full time Chairperson, then over time the CEO would take over the role of Chairperson. Given that recent events have shown how chairpersons interfered in the operational side of an organisation's work, he queried whether the report should note that the Minister or Board should clarify the specific roles of the chairperson and CEO. Was there a provision in the Bill for the Minister or Board to clarify these two roles? The second thing the Committee might want to raise was the concern about the long term role of the FFC. The FFC, Treasury and other stakeholders should have a relook at the role of the FFC. Was the role envisaged in the Constitution still needed? What was its future role? Budgetary constraints and the role of the Commission should be taken into account when dealing with payments. Was there a term set out for the Chairperson? Given Treasury’s concerns about the use of resources and about productivity, should not the Committee say it would monitor, periodically, the performance of the chairperson and CEO?

Ms Tobias asked what the intention of the object of the Bill was. Could the relationship of a chairperson and a CEO not be captured in the objects of the Bill rather than only reside in the Committee Report?

Adv Empie Van Schoor, Chief Director of Legislation at Treasury, said that in the Bill the proposal was to shift the functions and accounting officer functions and CEO functions from the chairperson to the accounting officer and so there was a detailed list of the functions of the CEO. There was nothing in particular about the functions of the chairperson and his or her relationship with the CEO, apart from the chairing of meetings. There were rules relating to corporate governance and in her view this should be done by the Commission itself. The Minister should not prescribe the relationship or the relationship should be put in the Bill.

The Chairperson asked if clause 10 could not include a clause that the Commission should clarify the roles of the CEO and chairperson and the relationship between the two.

Adv Van Schoor suggested that clause 8, on effective governance, rather be looked at. If this were to happen then the objects of the Bill also had to reflect these amendments.

Adv Frank Jenkins, Senior Parliamentary Legal Advisor, said the issue of the objects of the Bill was important because it determined how the legislation was interpreted. Including the roles and relationships of the CEO and chairperson would strengthen the legislation and he was fully supportive of it.

Adv Van Schoor said the term of the chairperson in the current Act and in the Amendment Bill was for a period not exceeding five years.

The Chairperson said the report could note that members favoured that they monitor performance regularly, that they were concerned about productivity and the use of funds and that regulations should be drawn up to ensure the roles of the CEO and chairperson were complementary.

Ms Tobias said they agreed with the essence of this and would consider it once it was written up.

The Chairperson asked for a final version of the Bill to be available within 24 hours so that the Bill could be voted on in the following week.

The meeting was adjourned.
 

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