bank's risk - management process and its own assessment of capital adequacy before such ratings may be applied in the determination of the bank's statutory capital requirement. supervisory review of capital, the second pillar of the new accord, will be a critical complement to minimum capital requirements. supervisors will have to evaluate how well banks are assessing their capital needs relative to their risks, including whether banks are appropriately addressing the relationship between different types of risk. market discipline, the third pillar, performs an essential role in ensuring that the capital of banking institutions is maintained at adequate levels. since effective public disclosure enhances market discipline and allows market participants to assess a bank's capital adequacy, disclosure can be a strong incentive for banks to conduct their business in a safe, sound and efficient manner. south africa has made good progress with preparations for the implementation of basel ii on 1 january 2008. the south african reserve bank remains committed to providing a regulatory environment that will allow south african banks to adopt international best practice. south africa ’ s financial sector is held in high regard, and the introduction of basel ii will enable south african banks to maintain, if not strengthen, their international standing, to the benefit of the economy. 4. the basel core principles countries use the basel core principles as a benchmark for assessing the quality of their supervisory systems and for identifying future work needed to ensure sound supervisory practices. the core principles have also been used by the international monetary fund and the world bank in the context of the financial sector assessment program. changes have occurred in banking regulation over the years, however, and much experience has been gained with implementing the core principles in individual countries. subsequently, the basel committee established the core principles liaison group to update the core principles to reflect these changes. this is to ensure their continued validity, usefulness and relevance as a flexible, globally applicable standard. the updated principles remain focused on banking supervision. issues related to the necessary infrastructure for effective banking supervision are discussed as preconditions and provide background for the assessment. the review also stresses the importance of the independence, accountability and transparency of bank supervisory authorities. recently, an exercise benchmarking the bank supervisory framework of south africa against the revised core principles was conducted and areas of non - compliance identified. an action plan has been initiated to implement the changes, thereby ensuring that the south african bank supervisory framework meets international standards. 5. the global financial sector according to the 76th annual report of the bis, the main risks confronting the

been significant investment flows into south africa over the past year. non - resident investors bought a net r13 billion worth of south african equities during may 2006 and r460 million the first half of june 2006. despite generally negative sentiment towards emerging market - market assets, they continued to buy r768 million worth of bonds in may and r4. 5 billion in june. about this there can be little argument, for all that i have done is to summarise the facts. it is also not in dispute that the repo rate, the rate at which the south african reserve bank will lend to the banks, was increased recently, primarily on account of deteriorating risks to the outlook for inflation. what we can debate, and what i look forward to hearing your views about, is the nature of the conflict regarding the outlook for interest rates in south africa. the south african reserve bank monetary policy review ( may 2006 ) states it as follows : “ on the one hand the inflation outlook, as reflected in the recent inflation forecasts of the bank, has improved significantly … “ on the other hand, there a number of developments that have led the mpc to remain vigilant ”. this was before the last meeting of the mpc. does a dilemma remain and how would you characterise it? let me have your views.