Could anyone apply the wonders of artificial intelligence to predict the next bank failure in SA? Unlikely. But it does not have to be like this. Though the Reserve Bank publishes bank-level balance sheet data, a small extension to what it makes available would make far more effective analysis of the banking sector possible. This would, coincidentally, be in line with the Basel III principle of third-party oversight.
Balance sheet data can be used to create important risk metrics, such as liquidity mismatches between short-term deposits and hold-to-maturity corporate bonds , which is relevant given the experience of Silicon Valley Bank in the US. SVB had invested most of its assets in long-term investments, yet it relied heavily on short-term deposits. When interest rates began to rise, SVB experienced liquidity problems.
But analysts can do only so much with balance sheet data, which does not tell you about many of the operational risks banks face. The crucial point is that the income statement and regulatory data is already collected and analysed by the Reserve Bank for good reason. If the “market” — including investors, researchers and civil society — had access to the same data, it would greatly enhance the effect of the Bank’s good efforts.
One might worry that more data availability might lead to market instability. On the contrary, it is considered best practice among leading central banks to make it easy for the public to understand the health of the bank they bank with. For example, the European Central Bank and Reserve Bank of New Zealand have banking dashboards on their websites that show how each bank performs compared with regulatory requirements and measures of their likely resilience to shocks.