While banks are managed with a view to generating profits and banks' shareholders expect a reasonable return on their investments, there are also strong public-interest considerations inherent in the operations of banks. It is these public-interest considerations that provide the rationale for the supervision and regulation of banks. The safety and ready availability of these funds for transactions are the responsibility of the banks' management and are essential to the stability and efficiency of the financial system. Banks employ the general public's funds to make loans and investments, thereby allocating scarce savings to productive uses within the economy. In a market economy, this process should work to channel funds to the economic sectors that will make the most efficient and productive use of the funds.
Banks serve as the main conduit for monetary policy between the central bank and the economy.
A reliable and efficient payment mechanism is thus an essential component of any well-functioning industrial economy. The above factors make banks not only an indispensable component of the financial system, but also a potential source of systemic instability. As a result of South Africa's re-entry into international financial markets, locally registered banks are increasingly expanding their operations into foreign countries, while, at the same time, foreign banks are seeking to expand their operations into this country. In the coming year, this Department will therefore give a great deal of attention to the adaptation and refinement of its standards regarding the consolidated supervision of South African banks' activities, including operations abroad, in order to comply with international standards, particularly those set by the Basle Committee on Banking Supervision, and the full implementation of such standards. The internationalisation of banks, coupled with the need for effective consolidated supervision, brings with it a need to build up more open and closer relationships with other supervisory authorities.