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

170 Fuchs, Losse-Mueller, and Witte
Macro-Prudential Oversight
Most regulators in Africa view macro-prudential regulation as a key challenge,
and the development of macro-prudential supervisory capacity—
with the exception of a very few countries—is in its infancy. Independent
of the adherence to new international standards, the development of
macro-prudential supervisory capacity is of crucial importance to most
African supervisors. The economic structure of many African economies
often results in high direct and indirect risk concentrations in a few sectors,
often natural resources, and macroeconomic risks are often more
significant for financial stability than the risks of individual institutions.
Still, most central banks lack dedicated surveillance units, and the
buildup of macro-prudential supervisory capacity imposes a range of new
demands that many regulators are unable to meet at this point. It requires
new cross-cutting skills combining macroeconomic analysis and regulation,
new modeling techniques, data collection and analysis, and practical
criteria for triggers and intervention. The additional resource demands are
considerable, particularly with regard to skills, training, modeling, technology,
and data. In addition, macro-prudential supervision requires a
cultural change from a passive rules-based supervisory approach to active
risk management. Regulators may lack the legal authority for intervening
on the basis of macro-prudential factors (rather than institution-specific
factors). Regulators need to work with governments to determine how far
they are prepared to intervene in the event of a buildup of systemic risk.
As a stepping-stone, African regulators might focus first on establishing
dedicated macro-prudential surveillance units before moving to fullfledged
macro-prudential supervision (including intervention powers). The
development of international standards for tools and measures to monitor
macro-prudential risks could inform similar exercises that are adjusted to
the existing resource and data constraints by African regulators.
Regional Cross-Border Supervisory Coordination and
the New International Supervisory Architecture
Cross-border supervisory issues are increasingly important for African
regulators. The continent has long had an international banking presence.
Recent inward investment by international banking groups and the
emergence of Africa-based regional banking groups have significantly
increased cross-border banking activity. Although international banks
continue to play a vital role on the continent, African markets are in fact
dominated by the cross-border operations of African financial groups.