Impact of the global economic crisis on Zambia  The Zambian financial sector did not immediately or directly become adversely affected by the credit crunch as was reflected in the continued stability of the banking sector, with most banks being adequately capitalised and the inter-bank market operating normally. This was mainly due to the sector’s limited integration into the international financial markets. Further, our financial sector had no exposure to toxic assets, which led to the credit crunch in most developed markets. However, the ensuing global financial crisis, with the global economic  BIS Review 161/2009  1  recession that followed, adversely affected Zambia, like most global economies, mainly through: reduced revenue earnings from mineral resources; job losses, particularly in the extractive industry; lower foreign capital inflow (both foreign portfolio investment (FPI) and foreign direct investment (FDI)); loss of foreign exchange reserves; rising domestic inflation driven by pass-through effects of the depreciation in the exchange rate of the Kwacha against major currencies; and declining number of foreign tourists. Reduced revenue earnings from mineral resources As you may already know, Zambia, like many African countries, relies heavily on commodity exports. This made the country more vulnerable to the global downturn. The global financial crisis and the plummeting commodity prices on the international market negatively affected Government revenue. The global economic recession resulted in a reduction in world demand for copper, which in turn, led to the precipitous fall in copper prices.

While the number of foreign banking organizations operating in the US has contracted over the last decade, the overall importance has grown. Foreign banking organizations now account for 45 percent of total banking assets in the United States, up from around 40 percent a decade ago, and they account for a substantial share of total securities underwriting in this market. Our framework for supervision and regulation is supportive of innovation. Much of the most transforming innovations in finance started in our markets or were adopted more quickly and more broadly here than in many other financial systems. The U.S. system, relative to the model in many other countries, has involved a continuous, risk-focused process of supervision and a strong enforcement mechanism working alongside the supervisory community. In addition, we have traditionally assigned a more important role to market discipline, importantly through a strong disclosure regime, in reinforcing the supervisory regime, than has been the case in other markets. Our system is successful in matching capital with ideas, in allocating savings to where returns are highest, in creating opportunities for households to better withstand the costs of change and dislocation that are inevitable offshoot of an open and dynamic market economy, and in spreading risk to where it can be best absorbed. The high degree of competition and flexibility that characterize our approach helps drive the pace of innovation, both in new forms of financial instruments and in new ways to manage risks. No financial system, of course, is without vulnerability.