Financial Sector Development in Africa: Opportunities ... - World Bank

156 Fuchs, Losse-Mueller, and Witte
Figure 5.1
15
Systemic Banking Crises in Africa
Number of African countries in crisis
10
Number
5
0
1980
1990
Year
2000
2010
Source: Laeven and Valencia 2008.
Two Pillars of Financial Stability: Capital and
Supervisory Capacity
In Africa, as in other regions, bank capital and the capacity of banking
supervisors to identify and correct risks are at the heart of the financial
sector stability agenda. The relationship between the strength of the
supervisory process and the strength of the capital base provides a useful
framework for a discussion about the priorities for banking supervision
and regulation in Africa going forward.
In most African countries, supervisory capacity remains low. Supervisory
resources, including qualified staff and the availability of analytical tools,
are limited. Many regulators are not independent in their decision making,
and legal frameworks often limit the corrective and remedial powers
of supervisors. Supervisory processes focus on compliance with regulatory
standards, but they are not set up to identify and manage the changing
risks in the banking system. The ability to monitor risks on the
institutional and systemic levels is hampered by insufficient data quality
and poor reporting processes.
Traditionally, African regulators and supervisors have used capital as
the main stability anchor for the banking system, aiming to balance
limited regulatory capacity with high capital requirements across the