- educated population and has relatively good airline and telecommunications connections. an ofc can also have a positive impact on the resident financial sector, through better access to international capital markets and more financial expertise. however, despite these advantages, many ofcs realise that they cannot ignore the growing concerns regarding their role in the international financial system. let me elaborate on the importance of ofcs for international financial stability. note that in our definition, we defined a stable financial system as a system that prevents shocks from having a disruptive effect on the real economy, but also on other financial systems. the latter part of this definition has become more relevant as financial systems have become more interrelated. the importance of ofcs for international financial stability can be illustrated by a few figures. in the first quarter of this year, bis reporting banks ’ claims against ofcs comprised almost ten percent of their total cross - border claims, creating a total risk exposure of almost 400 billion us dollars. these exposures are larger if off - balance - sheet activities are taken into account. in addition, insurance corporations and investment funds also use ofcs. unfortunately, information on these off - balance and non - bank exposures is scarce. two years ago, the financial stability forum identified ofcs as a weak spot in the international financial system. in particular, ofcs were spurred to strengthen their supervision and regulation frameworks and co - operate more intensively with the onshore authorities. subsequently, the imf has been asked to monitor the progress in this area, by carrying out offshore financial sector assessments. for aruba, this assessment was completed in june of this year, and looks very encouraging. after all, only two years ago aruba was classified by the financial stability forum as one of the ofcs with legal structure and supervisory practices of a lower quality. compared to other ofcs, offshore banks and insurance corporations are relatively unimportant in aruba. by contrast, the large number of small, corporate vehicles is of particular interest. actually, almost 5000 offshore corporate entities are registered on the island. up to now, these were not supervised and not very transparent, and therefore represented a potential risk from a financial stability point of view. following the imf ’ s recommendation, however, the central bank of aruba will probably be appointed as regulator of this sector. in particular, the bank will supervise company service providers, which act as legal representatives of the offshore corporate entities. as a motivation for recommending the central bank of ar

are subject to risks stemming from a sovereign credit rating downgrade because of the size of their bond holdings. their large exposure to this asset class does not, however, present a financial stability risk as pension funds normally hold these bonds to maturity. a healthy, well - functioning financial system is integral to an environment in which structural, fiscal and monetary policies can be most effective. recent assessments of the south african financial system by the imf claim that regulatory reform has made the system relatively safer. designated procedures for systemically important financial institutions have been put in place ; stress testing has become a regular part of the supervisory toolkit ; capital buffers have been increased ; new rules to address liquidity vulnerabilities have been introduced ; resolution frameworks have been strengthened ; and over - the - counter derivative regulation has been enhanced. page 4 of 5 there are important areas where more progress is still required, including the full implementation of strengthened resolution frameworks, measures to increase the resilience of central counterparties, and measures to address the systemic risk emanating from asset management activities. new challenges are emerging from technological changes and innovation, such as the digitisation of finance. ongoing financial innovation, changes in business models, and strengthened bank regulation have all supported an increasing shift from bank lending to market - based finance, and the importance of non - banks has continued to grow. in conclusion, it is clear that the global and domestic financial systems ’ have become more resilience since the publication of the previous fsr in november 2017. some global uncertainties caused by a number of economic and financial developments remain, including faster - than - expected monetary policy normalisation in the advanced economies, as well as protectionist measures and possible retaliatory actions by others. despite these challenges, the south african financial system continues to efficiently facilitate financial intermediation and mitigate negative spillovers and disruptions. overall, despite some headwinds from a moderate economic growth scenario and some remaining fiscal challenges, the south african financial sector is assessed as strong and stable. the sector is characterised by well - regulated, highly capitalised, liquid and profitable financial institutions, supported by a robust regulatory and financial infrastructure. i have briefly highlighted the key issues raised in this fsr. more detailed analyses are available in the publication itself, and some of these will be highlighted in the presentation by my colleague, dr farrell. i trust that you will find these interesting, stimulating, and relevant to the current environment, and i invite you