the financial system and the banking sector in particular. although household debt, as a percentage of disposable income, has been improving consistently since reaching a peak in the first quarter of 2009 and the ability of households to service their debt has remained strong given an extended period of low interest rates, the household sector is now faced by a rising interest rate cycle and higher cost of living. household wealth has increased strongly, however this was mainly as a result of a significant increase in the valuations of financial assets, possibly leaving consumers in a financially vulnerable position. house prices in south africa are fairly valued at present and do not present any risks to financial stability. equity market valuations, on the other hand, are currently at fairly elevated levels and a sudden and sharp correction in equity markets could reveal vulnerabilities that could have certain indirect negative effects on the financial system. south africa has been participating in the fsb ’ s monitoring exercise of non - bank financial intermediation activities, or shadow banking as it is commonly known, since 2012. although their share of total financial assets increased to about 18 per cent in the fourth quarter of 2013, non - bank financial intermediaries currently provide only about 11 per cent of total credit extension in the south african financial system. the optimistic outlook for some advanced economies continues to diverge from the more subdued growth outlook for emes amid persistent concerns over country - specific weaknesses. while leading indicators are pointing to the global recovery gaining strength in the second half of 2014, some constraints from both the fiscal and the monetary sides, as well as slow progress with structural reforms in some instances, remain a risk to a sustainable global recovery. a prominent exogenous risk to domestic financial stability is the effect that monetary policy normalisation in advanced economies and the us in particular could have on emes, including south africa. although normalisation has been discounted to an extent and forward guidance allows markets to anticipate policy moves better, the timing and magnitude of interest rate increases and their effects on capital flows and financial markets remain uncertain. another important global development, not reported on in the fsr, is the results of the european central bank ’ s comprehensive assessment of bank balance sheets and stress testing announced recently. twenty five banks failed the assessment and need to raise bis central bankers ’ speeches €25 billion of new capital. twelve banks have already covered their shortfalls in the year to september. the ecb expects the in - depth review of the largest banks to boost public confidence

lesetja kganyago : south africa ’ s september 2014 financial stability review introductory remarks by mr lesetja kganyago, deputy governor of the south african reserve bank, at the launch of the september 2014 financial stability review, johannesburg branch of the south african reserve bank, johannesburg, 29 october 2014. * * * members of the press, guests and colleagues, welcome to the release of the september 2014 edition of the financial stability review. the financial stability review has been published semi - annually since 2004 which makes this year its tenth anniversary. in addition to its primary objective of price stability, the bank also oversees and maintains financial stability. in pursuit of this mandate and to contain systemic risk, the bank continually assesses the stability and efficiency of the key components of the financial system and formulates and reviews policies for intervention and crisis resolution. through the publication of its financial stability review the bank endeavours to communicate its assessment of potential risks to financial system stability. the bank also strives to enhance the understanding of, and encourage informed debate on these complex and challenging matters related to financial stability. south africa is in the process of reforming its financial - sector regulatory architecture by implementing a twin peaks model of financial regulation. under this approach, supervisory roles will be streamlined between the bank and the financial services board. the financial sector regulation bill, 2013, gives primary responsibility to the bank for promoting financial stability. in terms of this bill, a newly created prudential authority within the bank will be responsible for the prudential supervision of banks, insurers, financial conglomerates and financial market infrastructures. the financial services board, in future to be known as the financial conduct authority, will be responsible for consumer protection through its marketconduct regulation and supervision. the bank transformed its financial stability unit into a fully - fledged financial stability department with effect from 1 april 2014, and elevated the status of the financial stability committee which has been in existence since 2000 to include deployment of macro prudential tools. the financial stability review is currently being revamped in line with the explicit financial stability mandate of the bank and global best practice. the revamped publication will report in more detail on financial stability policy decisions once the new architecture is in place. the financial stability department is in the process of developing a toolkit of macro - prudential policy instruments in addition to further refining its monitoring framework for financial stability, developing a top - down stress testing model and preparing policy proposals for the development of a resolution