With the current economic outlook, and so many banks being underwater on long dated HTM bonds, the risk of mass withdrawals and the associated contagion has me considering risk management.
I'm sitting with the proceeds of a home sale in a 7 day account, trying to wait out the economic slowdown and pick up a decent property if demand in CPT ever decides to wane.
But with all my eggs in one basket and a 7 day lock up, and funds not insured by the SARB in the same way as the FDIC in the USA, I'm feeling a little exposed. Considered physical gold, but don't really want the downside risk.
How do we all feel about local bank liquidity in general wrt global contagion risk?
Any ideas on where you could park money for a year where you would feel safer than say FNB or Capitec? Do local money market funds insure your deposit 100%? I'm a bit of a noob as I don't really use these facilities.
Many thanks.
Hmm really great question
Atleast you were honest from the outset
Your mindset and worry is completely blown out of scale
Ill do some quick context and move on. Im in Investment banking - Currently in an international bank here. this isnt to gloat or anything, just to say I am coming from within
SA's banking environment is rated higher internationally, through S and P, Moodys, World bank etc, than the current sovereign. Now this is an incredible thing to say, but it is fact. In the normal risk context Government is your final straw, the instrinsic idea of risk free rate. So when The Banks (essentially tier 2) sit under the sovereign in the jurisidction they operate liquidity in is higher than the sovereign, what this should tell you is that the market and overall has more comfort in the banks ability to deliver liquidity, ensure stability than the government to which policy and regulation is set
Some other key items to share, is that the scale and size and population, and size of assets in our Local banks are a fraction of the size of the likes of SVB and others. To put that into context, where I work our asset book just in the local context is bigger than all 4 banks, Std bank, absa, nedbank and FNB combined. So when you read that there is contagion and a bank runs out of liquidity, its because the scale of their operations and specificity of their assets are weighted in high risk industries and jurisdicitions, raising the significant need from Basel 3 and latest 4, to ensure capital adequeacy to match the asset quality. This is specifically the problem with banks outside of SA. If you think that SA and AFrica is high risk, you do not understand the underlying and how much more risk there is outside of SA
Capital adequacy requirements in SA are far more stringent regulated and required. WE do not have the scale that a run on the liquidity could occur.
The reality is in fact, government has a higher likelihood of default than our banks. This is fact. I would not concern yourself of safety of your funds within our banks. You should however concern yourself to actually voice this through voting and action in the Political voting occuring next April
There are 34 banking issued licenses in South africa - for interest sakes, google how many licensed banks are in the United states and it will become abundantly clear to you just from that search why its so easy for banks in developed markets to have systemic contagion and liquidity events.
Just put your funds into a stable interest environment, avoid the *too good to be true* rates and be comfortable that your money is safe. You are worrying about items or events that are slim at absolute best.
