Public trust in the financial system is not what it needs to be — Kganyago

Efforts to bolster consumer education on the intricacies of financial regulation or financial economics are ongoing

13 March 2024 - 15:04
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Governor of the South African Reserve Bank Lesetja Kganyago. File Photo
Governor of the South African Reserve Bank Lesetja Kganyago. File Photo
Image: Esa Alexander/Reuters

Reserve Bank governor Lesetja Kganyago has told delegates at the Financial Services Conduct Authority (FSCA) conference in Johannesburg public trust in banks is not what it should be after currency manipulation allegations against local and international banks.

“We cannot say the public image of the financial sector is everything it should be,” Kganyago said.

He was referring to the Competition Commission's 2015 probe into allegations that 28 local and international banking and financial service institutions had manipulated the rand against several currencies between 2007 and 2013. However, the Competition Appeal Court, in January 2024, cleared the charges against 23 banks and financial institutions involved in the Competition Commission’s investigation.

I worry about our ability to have well-informed policy conversations, in potentially more stressful circumstances, if bad analysis can get this kind of public reaction.
Lesetja Kganyago

“It was remarkable, with the allegations last year about banks manipulating the exchange rate of the rand, how ready people were to believe there was a giant conspiracy to rig the rand and this had weakened the exchange rate, pushed up inflation and raised interest rates,” Kganyago said.

Economists and market specialists understood that even if there had been market manipulation by some traders, the macro effects of the exchange rate being a few cents weaker or stronger for an hour or so would have been trivial.

“The impact on inflation and rates would have been zero.

“We also saw the Competition Appeal Court rule in January that there was no evidence of a general conspiracy.

“But this was not the conversation taking place in the public domain”.

He said most people could tell traders were behaving unethically, plotting in chat rooms, and this misconduct was so obviously wrong it eclipsed further analysis.

“What I learnt from this is public trust in the financial system is not as deep as it needs to be. I worry about our ability to have well-informed policy conversations, in potentially more stressful circumstances, if bad analysis can get this kind of public reaction.”

Kganyago said efforts to bolster consumer education on the intricacies of financial regulation or financial economics are ongoing, adding many people have strong opinions on the ethical questions and especially the ethical failures.

“This is the stuff that can catch fire with the public. If one of these fires start it is going to be a difficult conversation to control and a difficult environment for making policy. The solution here is the solution with all fire risk: you need to reduce the supply of flammable material, you need early detection systems and you need firefighting equipment.”

He said in the South African context this means treating customers fairly.

“You need to have a financial system which treats people fairly, where misdeeds are detected and are dealt with promptly and effectively. If you do not have this the system will be fundamentally unsafe. Ultimately, your moral capital is like your financial capital. You need it most in a crisis and if you do not have it that is when you fail.”

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