in the interest of global financial stability and to ensure the longevity of the role of banking in financial systems, it has become critical that guidelines are developed to address integrity within banks as well as between banks and their clients, counterparts, and competitors – guidelines which are globally relevant, robust over time, and aspirational, and which influence behaviour across society. the new frontier for standard - setting, however, comes with challenges. in the normal course of risk management, internal targets and banking rules take the form of a plethora of financial measures, numbers, statistics, and technical financial analysis, which form the primary toolset. the challenge is that these rules are a necessary precondition, but not a sufficient one. they help to guide compliance, which tends to speak to the letter of the rules, but seem insufficient in guiding culture, which goes further to also include the spirit of the rules. the current charge requires the establishment of codes which are normative for individual and corporate behaviour. this is challenging from at least two perspectives. the one is systemic : the legal paradigms of modern society protect individual rights, privacy, and autonomy. the other is practical : it is dramatically time - consuming to observe and analyse behaviour for noncompliance with codes. this also has the potential to create inordinate distrust, and this should not be overlooked by regulatory authorities. allow me to touch on the initiatives currently underway in south africa, which will help in strengthening market conduct and culture. enhancing market conduct and culture in the banking and financial sectors : the twin peaks reforms south africa is in the throes of one of the most significant reforms to the financial regulatory landscape since the 1980s : the introduction of the twin peaks model of financial regulation, the heart of which includes a proposed new approach to market conduct regulation. as most of you will know, the plan is to establish a prudential authority ( pa ) and a financial services conduct authority ( fsca ). the reform process is an important opportunity to develop and enhance south africa ’ s market conduct regulatory framework. the soon - to - be - created fsca, which will replace the current financial services board ( fsb ), will be given the task of being an integrated market conduct regulator in the financial sector, with the following statutory objectives : • promote the fair treatment of financial customers. • enhance and support the integrity and efficiency of the financial system. • develop financial literacy and capability. • assist in maintaining financial stability. for financial institutions

this reason, the bundesbank expressly supports the initiative of the ecb, which in october published guidelines in an effort to push ahead with scaling back of npls. 3. profitability in the german banking sector still low after the good news, now for the not - so - good : the profitability of german institutions continues to be low. this effect is partly attributable to structural factors and partly to the low - interest - rate setting. indeed, the impact of low interest rates is hitting the german banking sector especially hard, as in many cases, the business models are heavily geared to interest income. as a result, we are seeing a substantial drop in profits in traditional deposit and lending business. german credit institutions are predicting that this development will continue. another factor is that german banks and savings banks are paying negative interest rates on their deposits with the central bank, but rarely pass these negative rates on to private customers. 1 / 4 bis central bankers'speeches so far, this development has been countered by the favourable macroeconomic conditions here in germany. the buoyant economic development, which is reflected, for example, in the small number of corporate and personal insolvencies, is a major reason why both loan default rates and risk provisioning needs have stayed low. in other words, the write - downs banks are having to make on loans are very small. this effect has boosted earnings, which would otherwise have been even lower. in the context of the dialogue with external auditors, who are advocating releasing risk provisions where possible given the current economic situation, i nevertheless advise banks and savings banks to stick with their conservative stance going forward. i consider necessary the additions to risk provisions which banks, according to information provided as part of the low - interest - rate survey, are planning in the medium to long term. it is good to see the managing boards at these banks are resisting the inclination to assume that conditions will always be good. to expect the favourable developments of the past to continue indefinitely might otherwise be tantamount to systematically underestimating credit risk. 4. a change in interest rates could hit parts of the banking system hard this problem is compounded by the fact that german banks have expanded their maturity transformation in recent years. in order to stabilise profits in times of very low interest rates, they have increasingly extended the lives and the interest rate lock - in periods of their loans. for instance, the percentage share of longer - term loans and advances – that