increased funding costs, were observable. in view of the developments in financial markets and specific events in some international banking institutions, the bank deemed it important to embark on a process to evaluate the appropriateness of south african banks ’ incentive schemes during 2008. a major change to the south african banking regulatory and supervisory framework occurred as a result of the implementation of basel ii on 1 january 2008. the process followed in implementing basel ii was characterised by its broad consultative approach ; several quantitative impact studies and field tests ; amendments to the regulatory and supervisory frameworks ; and regular interaction with all south african banking institutions. the amended banks act, 1990 and regulations relating to banks, as well as the revised supervisory process were implemented at the same time. the bank, in close co - operation with the financial intelligence centre, continued to monitor the compliance of banking institutions with legislation relating to anti - money laundering and combating the financing of terrorism. furthermore, in august 2008 the bank participated in the financial action task force ’ s mutual evaluation of south africa ’ s anti - money laundering and counter - terrorism financing system. international co - operation the african continent and the southern african development community ( sadc ) region remain the focal points of the bank ’ s international relations efforts as programmes to achieve regional integration gain momentum. the bank currently hosts the secretariat of the committee of central bank governors ( ccbg ) in sadc and continues to support the implementation of ccbg projects. significant progress has been made in the committees dealing with payment systems, information technology, macroeconomics, banking supervision and legal issues. this progress has been shared with the finance committees in parliament where the ratification of the finance and investment protocol, a key instrument to advance regional economic integration in sadc, has been sought. in our relations with multilateral institutions our efforts have been concentrated on increased participation in key forums such as the g - 20. the chair of the g - 20 passed on to brazil from south africa at the beginning of this year. south africa remains an active participant in this forum of systemically important advanced and emerging - market economies. the focus of the forum this year includes competition in the financial sector, fiscal space for social inclusion and clean energy. in addition, with the active involvement of the forum, progress was made this year with the reform of the bretton woods institutions, particularly in relation to quota reform and the finances of the international monetary fund ( imf ). the bank, through the sarb college ( the college ) continued

rand against a basket of currencies depreciated by 21. 4 per cent from 22 may 1998 to 31 august 1998, to bring the cumulative decline in the external value of the rand from the end of last year to 24. 6 per cent. the depreciation of the exchange rate encouraged further capital outflows in the form of negative “ leads and lags ”, and also led to speculative positions taken against a further depreciation of the rand. in the end, a net outflow of more than r13 billion in the form of private sector short - term capital exerted additional pressure in the foreign exchange market. • • • • the outflow of capital reduced liquidity in the banking sector and forced the banks to borrow more from the reserve bank on a day - to - day basis. the estimated daily liquidity needs of the banks increased from about r2 billion at the beginning of may to more than r13 billion in early june 1998. other interest rates followed the yield on long - term government bonds on its strong upward surge. the rate for repurchase transactions from the reserve bank increased from 14. 78 per cent on 12 may 1998 to 24 per cent on 22 june 1998, before it settled early in july at a level just above 21 per cent. banking institutions raised their prime overdraft rate from 18. 25 per cent at the end of april 1998 to 25. 5 per cent on 28 august 1998. in order to provide liquidity to the drained foreign exchange market, the reserve bank drew about r8 billion on foreign loan facilities and increased its outstanding hedge facilities in respect of future international balance of payments commitments from us $ 17. 5 billion at the end of april 1998 to us $ 25. 3 billion at the end of june 1998. having risen by 32. 3 per cent from december 1997 to an all - time high in may 1998, the average monthly level of share prices listed on the johannesburg stock exchange declined by 38. 7 per cent between may to september 1998. although the financial conditions started to stabilise again in early july 1998, the situation remained extremely sensitive throughout the next three months, up to september 1998. exchange rates, yields and interest rates and share prices reacted to rumours, speculative transactions and adverse international developments, and most of the financial aggregates showed great volatility. 3. adverse financial conditions brought negative developments in real economic activity the adverse developments in the financial markets had a negative effect on an already fragile real domestic