An indicative/education tool on cost of banking regulation

We developed an indicative cost of regulation model for the South African banking sector to demonstrate how the bank regulations created a regulatory cost across specific products for the Banking Association South Africa (BASA).

The project models the quantitative cost impact of regulation on specific asset products. The model is a relatively simple one and makes key assumptions. The model is not a pricing tool as it has no economic information. This model is not used by banks because it is too simple and would not withstand regulatory scrutiny. However, it is a valuable tool to educate stakeholders on the cost of regulation attributed to the Banks Act.

The model establishes a regulatory capital cost as a result of changing regulations initiated by the international standard-setting body, the Basel Committee on Banking Supervision, since 1988.

The model is built using our sample bank's public financials to provide real-world key inputs and it is based on the Basel capital regulatory requirements, liquidity and leverage ratio requirements evolved over time as a quantifiable and comparable cost to be recovered by the bank from the economy.