Bankorp’s lifeboat was unlawful – PP’s counsel
Pretoria – The lifeboat granted to Bankorp during the apartheid era by the South African Reserve Bank (SARB) was unlawful, a court has heard.
On the second day of the Bankorp-CIEX review at the North Gauteng High Court on Wednesday, Public Protector Busisiwe Mkhwebane’s counsel Paul Kennedy SC gave reasons for the illegality of the lifeboat.
In June Mkhwebane released the Bankorp-CIEX report. Her findings called for ABSA, which took over Bankorp in 1992, to repay R1.125bn for a lifeboat provided by the Reserve Bank during the apartheid era. Both the SARB and ABSA filed court applications to have the court review the report and set it aside.
During his delivery, the SARB’s counsel David Unterhalter SC argued that Mkhwebane had misunderstood the role of the Reserve Bank as a lender of last resort.
“It is fundamental to the bank’s role that it ensures financial stability of the financial system. One of the risks to financial stability is sometimes if a bank or many banks run a risk of insolvency. The role of the bank is to intervene to prevent systemic risk to the financial system. That was done in respect to Bankorp,” he explained.
Kennedy, however, said that Mkhwebane had found illegality or maladministration by the SARB when it extended the lifeboat. “There was an unlawful lifeboat and lender of last resort was abused, or did not provide proper justification.”
He took aim at the SARB for attacking the public protector’s understanding of its role as the lender of last resort.
“She does not say there can be no concept of lender of last resort,” said Kennedy. However, the public protector raised issue with the modality or the means by which the role was undertaken.
“While the Reserve Bank might have been able to play the role of lender of last resort, it did not fulfil the role, it was more of a giver.” Kennedy argued that if it was a “proper loan” it would have required security and would not have been a “bottomless pit”.
In Bankorp’s situation, there was no security provided for the loan, it seemed open-ended and without proper controls for the lender (SARB) to invoke, he explained. There were also no proper means in place to ensure Bankorp was taking corrective action at the time to ensure it was not developing a bottomless pit, he reiterated.
In his reply Unterhalter reminded the court of his earlier argument that it was not a rationality issue but related to the separation of powers.
He explained that Mkhwebane failed to differentiate between the competence of the SARB as a lender of last resort and the manner or modalities by which it intervenes as a lender of last resort.
“She questions the legitimacy of the object of the intervention, which is the very role of the bank as the lender of last resort,” said Unterhalter.
“By calling into question the fundamental role of the Reserve Bank as a lender of last resort, the remedial action has been a source of instability within the financial system,” he said.
Through the remedial action, the public protector committed herself to a position “fundamentally at odds” with the constitutional role given to the bank, and engaged in an inquiry which violated the separation of power, he argued.
The hearing of the matter is set to conclude on Thursday.
* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER