##quacy framework, now known as basel i. this initiative set out the first internationally accepted framework for measuring capital adequacy and a minimum ratio to be achieved by the banks. this norm was widely adopted in over 100 countries, and in india, it was implemented in 1992. over the years, however, the basel i framework was found to have several limitations such as its broad - brush approach to credit risk, its narrow coverage confined to only credit and market risks, and non - recognition of credit risk mitigants, which encouraged capital arbitrage through structured transactions. moreover, the rapid advances in risk management, information technology, banking markets and products, and banks ’ internal processes, during the last decade, had far outpaced the simple approach of basel i to measuring capital. a need was, therefore, felt to replace this accord with a more risk - sensitive framework, which would address these shortcomings. accordingly, after a wide - ranging global consultative process, the basel committee on banking supervision ( bcbs ) released on june 26, 2004 the document “ international convergence of capital measurement and capital standards : a revised framework ”, which was supplemented in november 2005 by an update of the market risk amendment. this document, popularly known as “ basel ii framework ”, offers a new set of international standards for establishing minimum capital requirements for the banking organisations. it capitalises on the modern risk management techniques and seeks to establish a more riskresponsive linkage between the banks ’ operations and their capital requirements. it also provides a strong incentive to banks for improving their risk management systems. the risk sensitiveness is sought to be achieved through the now - familiar three mutually reinforcing pillars. the pillar 1 stipulates the minimum capital ratio and requires allocation of regulatory capital not only for credit risk and market risk but additionally, for operational risk as well, which was not covered in the previous accord. the pillar 1, unlike the previous accord, provides a menu of approaches, from the simplified to the advanced ones, for determining the capital charge for each of the three categories of risks. the credit risk mitigants used by the banks have been specifically recognised to provide appropriate capital relief. the pillar 2 of the framework deals with the “ supervisory review process ” ( srp ), and is probably not that well understood as the other two pillars. in fact, this is the element which makes the revised framework very comprehensive in its sweep by addressing the entire risk domain of the banks. let

’ speeches the earlier mentioned financial sector regulation bill establishes the bank as the resolution authority for domestic sifis and market infrastructures, and affords certain resolution powers to the bank. during 2012 / 13 the bank focused on the development of recovery and resolution plans ( rrps, also called “ living wills ” ) by all banks registered in south africa. a resolution policy working group ( rpwg ) was established, consisting of representatives from national treasury, the financial services board and the bank, which is to draft the resolution bill taking cognisance of the requirements of the key attributes. we hope to have this bill finalised by the end of 2014. strengthening oversight and regulation of shadow banking entities : the shadow banking industry has grown tremendously in recent years. the fsb ’ s 2013 report indicated that non - bank financial intermediation grew by us $ 5 trillion in 2012 to reach us $ 71 trillion. the assets in the shadow banking system expanded in most jurisdictions in 2012, helped by a general increase in valuation of global financial markets, while bank assets stagnated. globally the assets of other financial intermediaries ( ofis ) represents on average about 24 per cent of total financial assets, about half of banking system assets and 117 per cent of gdp. a broad regulatory policy framework for strengthening oversight and regulation of shadow banking entities was endorsed by all g20 members. the framework addresses five policy areas : mitigation of risks in banks ’ interactions with shadow banking entities ; reducing the susceptibility of money market funds ( mmfs ) to runs ; improving transparency and aligning incentives in securitization ; dampening pro - cyclicality and other financial stability risks in securities financing transactions such as repos and securities lending ; and, assessing and mitigating financial stability risks posed by other shadow banking entities and activities. peer reviews by iosco of implementation on the regulation of money market funds will start in 2014. a particular issue for south africa is that the definition of shadow banking namely, “ credit intermediation involving entities and activities outside the regular banking system ” – has different implications in different countries. in the case of advanced economies, it is primarily applicable to such entities as money market funds, hedge funds and private equity funds which play a large role in the financial systems of these countries. in the case of emdes like south africa, these entities are less prominent and although we agree with the intent to bring unregulated or under - regulated activities into mainstream regulation