Abstract
Ph.D. (Economics)
The object of this study was to examine the solvency standards
of South African commercial banks on the basis of internationally
accepted criteria, in order to determine whether these institutions
maintain adequate capital resources to meet their liabilities
at all times.
The question of capital adequacy was approached from the point
of view that the solvency of banks is subject to the influence
of certain structural changes that are taking place in the Western
banking system. These changes can be classified into four broad
categories, viz. increasing government intervention in private
banking; the formation of banking groups with a view to mobilising
large resources of funds; the diversification of banking
services; and a greater international alignment of Western banks.
In the ever-changing banking environment, and given the risks to
which banks are continually exposed, banks aim to maintain adequate
solvency standards at all times without sacrificing too much
liquidity and/or return on shareholders' funds. Because of the
commercial banks' unique position as holders of the public's
financial assets, as well as their ability to create money, they
are subject to monetary control and strict prudential supervision.
When a bank finds itself in the position that, after taking its
own capital resources into account, it is unable to meet its liabilities
because of these liabilities exceeding its assets, insolvency
is almost unavoidable. To continue in business, the bank's
capital should therefore be adequate not only to finance its infrastructure
but also to absorb unforeseen losses.