co - ordination and rapid execution of the many interventions that were necessary would have been almost inconceivable in a situation where the supervision of banks was not part of the bank. stability in the banking sector is so integral to the monetary policy transmission mechanism, that a central bank must always be involved in banking supervision. unlike other financial institutions, banks potentially pose a systemic risk because of the nature of their contracts. their assets are typically long term and uncertain in value, whereas their liabilities are generally short term and certain in value. the banking sector is therefore prone to contagion as soon as confidence in any bank is undermined. these characteristics give rise to the commonly accepted approach of regulating banks in a discretionary manner. a rules - based approach to banking regulation would be inappropriate because every case of distress in the system is unique. supervision consequently has to be risk - based and proactive. the banking supervision function in the reserve bank has caused many problems and frustrations, and the temptation to pass the responsibility on to another agency is great. however, the capacity to perform effective banking supervision is crucial to price and financial stability. after careful consideration of the issue, i am therefore convinced that it is in the best interests of the south african economy that banking supervision should remain in the bank. at the same time, i also realise that close co - operation should exist between the different regulatory authorities to address the need for consolidated supervision. co - operative working arrangements between regulators are essential to address the ever - increasing demands of sound regulation, the hallmark of which consists of decisiveness, timely action and proactive intervention when required. regulating the banking sector the different approaches adopted to handling the liquidity problem of banks in the past year have created considerable uncertainty about the principles applied in regulating the banking sector. this again emphasises that the execution of this function should be made as transparent and business - like as possible. the objective of bank supervision is to ensure stability, efficiency and depositor protection in banking. a stable financial environment is essential for the working of the economy and the attainment of price stability. a sound banking system contributes to the effectiveness of intermediation, maturity transformation, payment facilitation, credit allocation and financial discipline. moreover, banks play an important role in collecting savings, allocating resources and providing liquidity. the registration of banks is the first step to achieve stability in the banking system. stability is promoted by preventing applicants with potentially destabilising weaknesses, such as unqual

the 2008 - 09 global recession with a slight delay, but more or less at the same time as most of the world ’ s largest economies. such cyclical patterns are largely unavoidable, and the best that macroeconomic policy can do is to limit their magnitude and hence their potential distortionary effects. what is worrying, however, is that while the gap between south african and world growth hovered at around zero just before and during the global recession, this growth gap has gradually widened ever since. it has averaged 1. 8 percentage points in the last five years, stood at 2. 9 in 2016, and – based on the imf ’ s and the sarb ’ s forecasts – could increase to 3. 0 in the current year. a similar observation arises when page 3 of 11 comparing south africa to its upper - middle - income peers4 : in 2002 - 07, domestic growth was, on average, 0. 4 percentage points below this group ’ s median ; last year, the gap had widened to 2. 5 percentage points. not ‘ a traditional recession ’ but ‘ a slow grind to a halt ’ how can we explain this lacklustre performance of the south african economy? and how can we explain its underperformance versus its peers? in many ways, the downturn of the past few years does not display the traditional characteristics of a recession. for example, there was no build - up of inflationary pressures that necessitated the shift to a restrictive, demand - constraining monetary policy. inflation has displayed a rising trend since 2011, resulting in the monetary policy committee of the sarb raising the repurchase rate by 200 basis points between january 2014 and march 2016. but by our own, admittedly imprecise, calculations, the real interest rate remained below its neutral level for most of that period. this would suggest that while monetary policy provided less stimulus, it did not turn outright restrictive. equally, we did not see the kind of asset - price bubbles or the build - up of other financial vulnerabilities which typically precede a recession, as the unwinding of such imbalances generally results in lower private - sector appetite for borrowing, tighter lending standards by banks, and a rise in precautionary savings by households. in recent years, in part thanks to the generally accommodative stance of monetary policy, banks ’ non - performing loans have declined, the number of home repossessions has equally fallen to