kingdom ( uk ), the bank of england ( boe ) announced the key elements of its 2017 stress test in march. the 2017 stress test includes two stress scenarios. alongside the annual cyclical scenario, the boe is for the first time running an additional exploratory scenario. the aim of this additional scenario is to consider how the uk banking system might evolve if recent headwinds to bank profitability persist page 6 of 9 or intensify. it includes weak global growth, persistently low interest rates, and stagnant world trade ; it has a seven - year horizon to capture these long - term trends. as i have mentioned before, stress testing forms an important component of the financial stability framework in south africa. as part of the 2014 fsap for south africa, the imf conducted a full stress - testing exercise for the banking and insurance sectors. the focus of the exercise was on both solvency and liquidity stress testing. in its recommendations, the imf proposed that the sarb develop a macroprudential stresstesting framework ( following a top - down approach ) to complement the existing bottomup exercises conducted by banks. in january 2015, the sarb established a stress testing division within its financial stability department. the division conducted a full stress - testing exercise on the domestic operations of the major banks in south africa during the period from december 2015 to april 2016. six major banks participated in the exercise, covering in excess of 80 % of the banking sector ’ s assets. the sarb requested the participating banks to conduct a bottom - up stress test focusing mainly on credit risk while the sarb conducted a top - down exercise using a common scenario. the stress testing division followed a formal risk identification and scenario design by developing a risk assessment matrix, involving the identification of the most relevant risks from the global and domestic environments, an assessment of their likelihood, as well as a qualitative evaluation of their impact on the real economy, the banking sector, and the financial system. major global risks were identified on which to base the scenarios ; these included a surge in global financial market volatility combined with a prolonged period of slower growth in both advanced and emerging markets. the results of the bottom - up stress tests were aggregated and validated against sarb ’ s top - down stress - testing exercise. the participating banks were found to be adequately capitalised to withstand significant credit losses throughout the stress scenarios before taking into account any mitigating action by banks

in central banks. limitations were consequently built into the rights and powers of the shareholders in the sarb, such as no policymaking or management roles, a fixed return of r200 000 per annum on shares held, no claim on the reserves held by the sarb, and the election of a minority of the board of directors ( board ). the management of the business of the sarb, including the setting of monetary and financial stability policies, vests in the governor and deputy governors, appointed by the president after consultations with the minister of finance and the board of the sarb. the financial sector regulation bill, approved by parliament in june 2017 and currently awaiting sign - off by the president, makes provision for an expanded mandate for the sarb, which includes financial stability. financial stability aims to enhance resilience to systemic shocks and to mitigate the macroeconomic costs of a disruption in financial sectors. financial stability is not an end in itself but is generally regarded as an important precondition for sustainable economic growth, serving the constitutional mandate of the sarb. financial stability is not about preventing shocks or crises, but more about identifying and mitigating the build - up of risks and vulnerabilities in the financial sector. neither is financial stability about preventing bank failures at all cost, as the failure of non - systemic banks ameliorates the risk of moral hazard and reinforces market discipline. page 2 of 9 a stable banking sector is, however, crucial for financial stability as these risks and vulnerabilities often originate from systemically important banks and their clients in the corporate and household sectors. to identify the vulnerabilities that might be building up in the banking sector early enough and to ensure proactive mitigating action, stress testing has become an important tool in the toolkit of systemic regulators. it adds an important macroprudential dimension to the supervision of banks by assisting supervisors and macroprudential authorities in evaluating the aggregate capital position of the largest banking firms as well as their individual capital levels. internationally active banks have been applying stress testing at the level of individual institutions since the early 1990s ; today bank regulators require the use of stress tests for monitoring both market and credit risks. macro stress testing, as a tool to assess the vulnerability of entire financial systems, is instead much more recent. it has been an important component of the financial sector assessment programs ( fsaps ) launched by the international monetary fund ( imf ) and the world bank in the