ensure that banking excesses bis central bankers ’ speeches would not be repeated, various fora, including the g20, the basel committee for banking supervision and the financial stability board ( fsb ) engaged in revising regulations and standards. regulation has become more stringent with the impending introduction of what is known as the basel iii framework. there was, however, always a concern that the regulatory pendulum would swing too far in the other direction, and there is the danger that their implementation may further impede the slow global recovery. in the eurozone for example, the need to increase bank capital has contributed to the reluctance of banks to lend. higher capital adequacy ratios are ideally achieved through raising capital, but in the prevailing economic climate this is difficult and expensive. banks have consequently been adjusting to these tougher ratios either through selling off some of their assets or by reducing their lending or both. the continuing crisis in europe is in part a function of continued bank deleveraging, and has required at times extraordinary intervention from the ecb. mario draghi, for example, reported in davos earlier this year that a “ major, major credit crunch ” had been avoided in europe, following the €489bn emergency loans to eurozone banks in december 2011. our concern has been that changes to the basel committee rules to which south africa subscribes, are intended to solve problems in the banking systems of some of the advanced economies, but would apply equally to countries such as south africa, that did not experience these excesses. in other words, the changing regulation would solve problems that we did not have, and could in fact cause unnecessary difficulties for the banks and for the broader macroeconomy. to some extent the revised principles have proved to be challenging, but we are nevertheless expected to abide by them as members of the fsb and the g - 20. some aspects of these changes could have significantly negative implications for our banks and for the economy in general if applied in the forms that are currently being proposed. we are committed to meeting the basel iii requirements, and are actively working with the global policy makers to see how these proposals can be modified or allow for country discretion in their application. but this is an example of how global solutions if applied indiscriminately to all countries, even to those such as south africa that did not experience regulatory failures, could have adverse consequences for some. the basel iii accord provides for high capital ratios in order to ensure that banks

improvement in international financial conditions that gained momentum during and after the 1998 annual meetings of the international monetary fund and the world bank. the improvement in the south african financial market conditions was reflected in : • • • • • a decline in the net sales of south african bonds by non - residents. the net outflow in october declined to less than r1 billion and was the smallest for the past six months. an easing in the overall liquidity position of banking institutions. the total liquidity requirement at month - ends declined from r12. 2 billion in june to r7. 2 billion in september and r5. 9 billion in october. a decline in long and short - term interest rates. the yield on long - term government bonds declined from 20. 09 per cent on 28 august 1998 to below 16 per cent at this stage. the rate on repurchase transactions from the reserve bank declined from 21. 85 per cent on 13 october to 20. 45 per cent today. banking institutions reduced their prime overdraft and mortgage lending rates by 1 full percentage point during the past few weeks. an appreciation of the rand from the very low level reached in july. during the month of october the average effective exchange rate of the rand appreciated by 3. 9 per cent to reduce the cumulative depreciation since the beginning of the year to about 17½ per cent. a significant slowdown during september 1998 in the rates of growth of both the m3 money supply and bank credit extended to the private sector. conditions in the financial market will hopefully continue to improve further and to lead real economic activity into recovery in the course of the current business cycle. the recent improvements in the south african financial market conditions should therefore hopefully lead to an improvement in real economic activity, and particularly in gross domestic production, during the course of next year. 5. what monetary policy must take into account for 1999 the tight monetary conditions, high interest rates and restrictive monetary policy in 1998 were forced on south africa by adverse developments in the international financial markets. in the situation, monetary policy had to carry a heavy burden in restoring financial stability to the south african financial markets. unpopular measures, such as a reduction in bank liquidity and high interest rates, had to be embraced in order to avoid more serious problems, such as a foreign reserves crisis, or a breakdown in the banking system. provided the encouraging recent trends towards greater stability in the international financial markets continues, monetary conditions in south africa should also gradually become easier. from the point of view