more complex and potentially less liquid risks, for which they are ultimately rewarded. we are therefore witnessing a fundamental change in the business of banking from buy - and - hold strategies to so - called ‘ originate - to - distribute ’ models. while this change presents opportunities and challenges for risk managers and supervisors, it also serves as a useful framework for thinking about the changing risks at banks and other financial institutions. this shift in business models has been propelled by the rapid innovation in financial instruments, in particular the interaction of the credit derivatives markets with the rapid growth of securitisation technology. it has also been influenced by the rapid growth of the institutional investor base. there are many new players to whom risk can be distributed, such as hedge funds, loan funds, funds - of - funds, in - house hedge funds and mutual funds. in particular, we are witnessing a rapid growth in investor appetite to take on new forms of credit risk. these developments have created many opportunities to improve the way financial institutions manage their risk exposures and reduce their vulnerabilities to traditional types of credit stresses. risks are now more widely distributed outside the banking system. there are more tools to manage risk concentrations. risks, and how they are priced, have become more transparent. as a result, deteriorating credit exposures can be managed more actively at an earlier stage. new risks and risk management challenges the transformation of banks ’ business models has yielded substantial benefits. however, the move to originate - to - distribute models also provides a useful framework for examining new types of risks that banks face and for highlighting some of the shortcomings of more traditional measures to manage them. by traditional measures, i mean simple balance sheet ratios of capital adequacy, historical measures of potential losses on loan portfolios, or value - at - risk - based risk measures in the trading book. the originate - to - distribute business models depend on several key characteristics : • first, a growing reliance on liquid markets ; • second, a healthy risk appetite among various types of investors, in particular those taking on the more risky portions of structured credit assets ; • and third, a diverse investor base to whom risk is being distributed. ultimately, what we are concerned about is the ability to transfer or actively manage the various risks that core intermediaries face, not just under favourable market conditions, but also during periods when financial market, credit and liquidity conditions are less benign. when seen through this prism, there are a number of new risks that

t t mboweni : economic growth, inflation and monetary policy in south africa speech by mr t t mboweni, governor of the south african reserve bank, at the business conference of the bureau for economic research, held in stellenbosch on 17 november 2000. * 1. * * introduction it should by now be well - known that the mission of the south african reserve bank is to achieve and maintain stable financial conditions in our country. this objective is spelled out in both the constitution of the republic and in the south african reserve bank act. in these acts it is recognised that only by protecting the value of the currency can balanced and sustainable economic growth be achieved. it is believed in the bank, and indeed in most countries of the world, that the potential for economic growth and creating job opportunities can only be fulfilled under stable financial conditions. by achieving this primary objective the reserve bank will make its contribution to sustainable higher economic growth in south africa. some economists and other commentators on monetary policy in south africa seem to think that the reserve bank is applying an over - zealous monetary policy stance to achieve its primary objective of price stability. they argue that the bank is obsessed with inflation at the expense of economic growth and job creation. at the current level of the inflation rate, this implies that an inflation rate of 8 % is too low to be treated as a serious concern. the bank should therefore provide more liquidity to the money market, allow the interest rate on repurchase transactions to fall and in this way encourage the economy to grow more rapidly. in the bank we believe that it would be a big mistake to shift the goal of monetary policy away from controlling inflation to promoting economic growth. 2. the determinants of economic growth economic growth is basically determined by three factors, namely : ( i ) the quantity of capital and labour available in a country ; ( ii ) the quality of capital and labour ; and ( iii ) the ingenuity of people in combining the available production resources in the creation of goods and services. output will rise if more production resources are put to work, or where a given supply of labour and capital is utilised more productively. nowhere does the aggregate stock of money or the aggregate price level form part of the determinants of any production model for sustained long - term economic growth. government policies, including monetary policy, affect the growth of domestic output to the extent that they affect the quantity and productivity of capital and labour. for example, government