The aim of this article is to identify what operational risk in banking institutions entails and to identify the various firm-wide key operational risk indicators in a typical South African retail bank. This article includes both internal and external operational risk events in the definition of operational risk. To identify firm-wide operational risk indicators, questionnaires were completed by managers of the different divisions of a South African bank. The exploratory factor analysis identifies three factors, or categories of risk indicators, namely firm-wide employee risk indicators, firm-wide system risk indicators and firm-wide business control risk indicators.
This paper examines the exchange rate exposure of South Africa's major commercial banks with the help of an augmented market model. In contrast to the weak empirical evidence in prior studies done abroad, this study reveals that all the four major banks exhibit significant foreign exchange risk. Our findings indicate that the net foreign currency asset position is a weak predictor of foreign exchange risk. The study sheds light on the averaging and offsetting effect of measuring exposure over an extended period of time. The results offer more evidence about the prevalence of economies of scale in currency risk management.
A long-term objective of the East Africa Community treaty is to form a monetary union. This paper tests the viability of this proposal using a model of government finance that minimizes the social cost of financing government expenditure. The results indicate that the policies of these countries are consistent with inter-temporal tax smoothing, but the marginal social cost equalization hypothesis is rejected. Thus inflation tax does not have to differ across the countries for government financing reasons. This is therefore one less obstacle to monetary union.