Chairperson, allow me to share with you some of the key regulatory and supervisory issues that the Bank of Zambia is addressing with regards to the regulation of the financial system in Zambia and the need to address the supervisory challenges posed by the global financial crisis. These issues include: the adoption of a risk based supervision (RBS), enhancing the legislative framework, the determination of capital adequacy, the introduction of a deposit insurance scheme, the enhancement of our lender of last resort regime, and the enhancement of cross-border cooperation through consolidated supervision of financial institutions. Risk based supervision is a structured, forward-looking process designed to identify key risk factors to which individual banks are exposed. This approach entails closer interaction with banks and allows early identification of risks as well as close monitoring of the nature and direction of risks as they emerge. The banking industry has recorded notable rapid growth in the last ten years. This growth comes with heightened risk levels. The RBS provides robust mechanisms to ensure that banks have adequate risk management systems to mitigate risks. RBS systematically considers all key functional activities (business lines and operational areas) and, within each key functional area, evaluates the level of risk, quality of risk management, and direction of risk. The resulting risk profile of the bank, which is dynamic, will therefore change during the supervisory cycle. This paradigm shift in supervisory approaches requires a permissive legal and regulatory framework.

Lender of last resort should be an essential element of the wider institutional framework for governments and central banks for dealing with banking crises in addition to prompt corrective action, bank resolution and deposit insurance among others. Distinguished delegates, the speed with which the crisis spread across the globe highlights the global nature of financial markets and the importance of cross border supervision. The risk posed by cross-border operations by financial institutions is clearly significant if not properly supervised. Over the years, many financial organisations worldwide have adopted more flexible and complex structures through the establishment of a wide range of subsidiaries and affiliates that are engaged in business lines different from the core business of the parent financial institution. The emergence of financial conglomerates has seen banking activities, asset management or insurance activities that previously were conducted on a stand-alone basis now being provided within one financial group. Some of these financial groups operate businesses across borders. The main economic and financial benefit which encourages the formation of such groups is the enhanced ability to achieve economies of scale and capture synergies across complementary financial services business lines. These synergies result in improved operational efficiency and effectiveness due to lower costs, reduced prices, and improved innovation in products and services. At the same time, the emergence of such groups has brought complex linkages and relationships among economic agents. Consequently, they have also necessitated a paradigm shift in supervisory approaches in order to identify, manage and monitor risks both within and across borders.