daniel mminele : recent major developments in global and domestic markets address by mr daniel mminele, deputy governor of the south african reserve bank, at the financial markets department ’ s annual cocktail function, pretoria, 24 june 2014. * * * good evening, it is a great pleasure for me to welcome you all to the financial markets department ’ s annual cocktail function. as has become tradition for this event, we would like to take stock of the major developments in global and domestic financial markets over the past year, before updating you on matters relating to the financial markets department and initiatives undertaken over the past year. tonight we will adopt a different approach, namely that i will cover the first section, and then hand over to leon myburgh, head of the financial markets department, to update you on departmental activities. given recent releases of the monetary policy review, the quarterly bulletin and speeches, i shall not comment in any detail on recent economic developments. re - pricing of risks in international and local financial markets those of you who were able to attend our function last year will recall that the assessment at the time was that of increasing confidence about the gradual “ healing ” of the global economy and financial system, and the reduction in “ tail risks ” that had unsettled markets for the previous two years. these improvements were at the time largely attributable to the drastic policy actions undertaken on an on - going basis by the world ’ s major central banks. yet at the same time, it was already becoming evident that there was a build - up of risks, and that the impact on financial markets of the timing, as well as the pace, of the eventual and unavoidable reversal of these extraordinary measures, could be substantial. looking back over the past twelve months, these factors became the dominant drivers of market movements, as was anticipated at the time. the gradual improvement in the major economies that was expected a year ago has continued, by and large, to materialise. global economic growth has picked up, albeit unevenly. the underlying strength of the recovery has been confirmed in the united states, the euro zone has emerged from recession, and there are indications that a prolonged period of deflation could be ending in japan. the extent of the slowdown in emerging market economies appears to have been one of the main surprise developments over the last year as emerging markets were not spared the negative consequences of global risk realignment while expectations of lesser liquidity provision by the us federal reserve led to

represents an important effort to help developing countries train their supervisory staff. the need for international cooperation extends beyond banking systems and bank supervisors, however, and must embrace the full range of regulated activities that large, complex financial institutions conduct. toward that end, authorities from around the world have established the joint forum, made up of representatives of agencies regulating banking, insurance, and securities activities. the financial stability forum, established by the g7 in 1999, is another effort to promote international financial stability through information exchange and cooperation in financial supervision. the forum regularly brings together national authorities responsible for financial stability in significant international financial centers - including both securities and banking supervisors international financial institutions, and representatives of international groups of supervisors and regulators. other groups exist and will, necessarily, be created to address issues of specific interest and may have short or long lives. the point is, it is important that we communicate and coordinate our activities, so that we understand each other ’ s responsibilities and oversight techniques. as international problems emerge - as they will - knowing our counterparts abroad and trusting their judgment could be essential to resolving problems in a timely and orderly way. conclusion the challenge of supervising global financial institutions is the challenge of the decade for supervisors. large banking organizations are likely to become increasingly complicated and wideranging, and the banking supervisory agencies will have to adjust to that. in my view, the adjustment will require increasing reliance on banks ’ own internal risk management, and especially on internal risk classification systems ; on regulatory capital linked to internal risk classifications ; on supervision that focuses on evaluation of, and supervisory feedback on, risk - management systems ; on market discipline ; and on increased cooperation among agencies. none of these steps will be easy. the good news is that we ’ ve started on all of these efforts, and that progress has already been made.