El oligopolio es el mercado en el que hay pocos competidores, pero colisionan para controlar el precio y evitar la competencia.

Ultimately, African Bank was successfully restructured. By August 2017, three years after the bail-in, the bank had resumed profitable lending. The ‘stub’ claim, created at the time of the bail-in, was trading at 66 per cent of par. Essentially

0.1% 0.2% 0.3%

Jul Aug Sep Oct Nov

Month − 2014

Spread: NCD r

ate to benchmar

k

Figure 4.4: Spread between bank NCD rate and overnight rate

The spread between the prevailing rate on negotiable certificates of deposits issued by banks and the benchmark rate widened over the course of the bail-in. Interviews with market participants reveal a substantial tightening of market conditions. Three non-bank financial institutions were forced to cancel bond issuances, and bond issuances for banks became more expensive.

the majority of the bail-in had been recovered as the profitability of the bank improved. The bail-in arguably provided an opportunity for the authorities to stop the further deterioration of the bank, recapitalise it by writing off creditors’ claims, and restore its ability to undertake business.

4.7

Conclusion

Policymakers are increasingly relying on bank resolution strategies that seek to impose losses on creditors. Using a unique event, this chapter analyses the effects

4.7. Conclusion 121

of one such resolution on money-market funds.

The immediate result was that all affected money-market funds ‘broke the buck’. This triggered large redemptions. Nevertheless, there was a limited impact on the financial system. There was a small but notable reallocation (3.6 per cent) of funds away from non-cash financial instruments issued by other banks toward government-issued instruments. Over the course of six weeks, the maturity of money-market fund holdings also changed – there was a decline in cash balances at large banks and a marked shortening of maturities. However, these effects were managed through complementary actions, including market-making facilities to ensure liquidity.

There are lessons for bail-in frameworks. The impact on creditors may create additional financial fragility, particularly when creditors are uncertain about their exposure to the bank being bailed in. Systemic runs may also occur when the failure is not believed to be idiosyncratic, leading creditors to believe that bail-ins may follow in similar banks.

If the authorities had not announced a credible haircut, or if the communication on the plan had been vague, the withdrawals from money-market funds may well have been larger, and the rise in redemptions may well in turn have led to the large- scale withdrawals of funds by money-market funds from other banks, precipitating a more generalised run. Money-market funds also responded differently depending on whether gating occurred – funds that chose to use retention funds had relatively smaller outflows.

The analysis challenged some of the conventional wisdom about the interaction between wholesale funding and banks. The first is that wholesale funding is more prone to runs than retail funding. Indeed, the experience of African Bank showed the contrary. It was predominantly funded by long-dated wholesale funding, and this arguably reduced the risk of a sudden run on the bank. Indeed, it seems that wholesale funders slowly reduced their exposure to African Bank by not rolling over their maturing instruments.

In this case, the bail-in was arguably successful. A failing bank could be partly recapitalised through imposing losses on creditors. Appropriate complementary actions, such as discretionary liquidity restrictions and market-making facilities for short-term paper arguably mitigated further spillovers. The African Bank

experience suggests that if carefully implemented, bail-in can support a bank resolution that shares the financial burden between strained fiscal authorities and creditors.

Chapter 5

Conclusion

Bank failures can have significant economic, financial, political and social conse- quences. Against the background of the international literature, this study draws lessons from South African bank failures between 2002 and 2014. In each individual chapter, lessons from specific episodes were drawn. In this concluding chapter, the focus is on broader, cross-cutting lessons.

5.1

Economic and financial lessons

The significant economic and financial costs associated with bank failures under- score the need for strong financial regulation and supervision, a robust financial stability framework, and appropriate resolution tools.

During the small bank crisis of 2002 to 2003, twenty-two banks closed over two years, with significant broader macroeconomic effects. The consolidation of the banking sector led to substantially reduced competition. During and after the crisis, money supply growth slowed, and liquidity declined. The central bank’s balance sheet shrunk by a third, from R150 billion to R100 billion, and overall credit extension growth declined from a three-year high of 15.7 per cent in January 2002 to 11.7 per cent by July of that year. The slowdown in lending experienced during the first half of 2003 was particularly noticeable in corporate lending, where many of the failed banks specialised.

The study also highlighted financial market spillover effects. Distress can 123

rapidly spread from one bank failure to others. The small bank crisis shared a number of features with ‘bank panics’ in other jurisdictions, in that the spillover effects were to other small banks. The chapter demonstrated that this contagion was through neither overlapping claims nor through information effects. Rather, there was a general loss of confidence in smaller banks. Banks with more fragile liability structures, i.e. with short-term wholesale funding, experienced runs. Even well-capitalised banks with short-term funding structures failed.

Chapter 4 demonstrated that spillover effects could take place through non- bank financial institutions. This was a key lesson of the 2008 global financial crisis – when Reserve Primary Fund, a money market fund, broke the buck on 16 September 2008, it contributed to significant damage throughout the financial system. During the African Bank failure, over fifteen money-market funds broke the buck and there was a brief run on money market funds. The spillovers were similar, but substantially more muted.