introductory remarks by francois groepe, deputy governor of the south african reserve bank, at the financial stability forum and release of the first edition of the financial stability review for 2018 south african reserve bank, pretoria 25 april 2018 members of the press, guests and colleagues, ladies and gentlemen. welcome to the release of the first edition of the financial stability review ( fsr ) for 2018. the fsr has been published twice a year since 2004. through this publication, the south african reserve bank ( sarb ) communicates its assessment of systemic risk in the domestic financial system. your presence at this financial stability forum is appreciated, as the forum intends to encourage informed debate on, and therefore to enhance the understanding of, the complex and challenging matters related to financial stability. consensus is growing globally that regulatory frameworks should focus more on mitigating the risks to the financial system as a whole, as significant risks can build up and threaten the stability of the financial system while individual financial institutions seem stable and sound. in pursuing this goal, the financial sector regulation act 9 of 2017 ( fsr act ) confers on the sarb an explicit statutory mandate to protect and enhance financial stability. the sarb and national treasury have consequently developed new legislation that will facilitate the orderly resolution of systemically important financial institutions that are failing, which is an important pillar of the sarb ’ s expanded mandate. this legislation will be effected through amendments to the fsr act. a key component of the resolution framework is the establishment of an explicit deposit insurance scheme for banks in order to protect depositors from losses in the event of a bank failure. page 1 of 5 overall, the message of this fsr is that the stability of the financial system in south africa has improved notably since the previous fsr. this is based on a more synchonised and more sustained economic recovery in the advanced economies, a more positive ( albeit still a challenging ) domestic economic growth outlook, as well as improved levels of confidence domestically following positive political developments and ratings outcomes. against this background, the sarb has assessed the risks to financial stability with a view to identifying and mitigating any vulnerabilities in the domestic financial system ; it has also analysed the probabilities and potential impacts of these risks in the fsr. in the presentation to follow, dr greg farrell will share a more detailed assessment of these risks. during the reporting period, a number of event risks occurred that proved not to be systemic in nature but

which had potential financial stability implications. these risks included the announcement of an investigation into accounting irregularities at steinhoff international holdings in december 2017, followed by the resignation of their chief executive officer and chairman. the group ’ s share price subsequently declined by more than 80 %, which resulted in a short - term liquidity crisis within the group. to date, the group has taken various actions in an effort to stabilise its finances and operations in the medium term. any potential financial implications arising from this event would most likely be the result of some form of default risk in respect to the group and related parties ’ debt obligations that the financial sector may be exposed to. while such a default could cause losses for banks, lenders and investors, it is unlikely to result in financial instability as most of the exposure to the group and related parties ’ lies with foreign banks. developments relating to this situation are, nevertheless, closely monitored. furthermore, since december 2017 we have observed an increase in the volatility of selected equities listed on the jse limited. the sharp, though brief, decline in the share price of capitec bank ( capitec ) was likely been triggered by a ‘ short - selling ’ strategy applied by certain investors. the common traits of such a ‘ short - selling ’ strategy include influencing market participants ’ perceptions by means of extensive use of social media platforms and potentially, running an ongoing campaign against the targeted entity. page 2 of 5 this type of ‘ short - selling ’ strategy has the potential to create financial instability, especially if the targeted company is a deposit - taking institution. although a decline in a bank ’ s share price does not necessarily create systemic risk, there may be a risk to financial stability. this could transpire if the information being spread by the ‘ short - selling ’ campaign, whether it be true or not, results in a negative feedback loop between lower investor confidence, as reflected in a decline in the equity price of the targeted institution and a loss of depositors ’ and lenders ’ confidence in the targeted deposit - taking institution. this may ultimately result in a decline in deposits or a ‘ run ’ on the bank. the negative feedback loop can exacerbate the circumstances even if the trigger event was based on inaccurate information. in the capitec case, statements by the sarb and appropriate responses by capitec calmed fears and led to a recovery in capitec ’ s share price. vbs mutual bank ( vbs ) was