. the tools necessary for addressing system - wide risks are commonly known as macroprudential tools. since the global financial crisis, it has become apparent that even if individual financial institutions appear sound, there may still be a risk of broader financial instability due to either excess leverage across the system or a high degree of common exposures to a particular risk. thus, the microprudential tools that have commonly been used to safeguard individual banks, such as minimum capital and liquidity ratios, need to be supplemented with a macroprudential approach to regulation. the sarb is currently researching a variety of potential macroprudential tools and financial stability risk indicators to improve the resilience of the broader financial system. the sarb ’ s financial stability committee has been set up to protect and enhance financial stability. it is tasked with considering qualitative assessments of the conjunctural assessments of risks to, and imbalances in, the broad financial system and formulating policy action to mitigate identified threats, as well as considering the appropriateness and adequacy of resolution policies and measures for crisis management. the sarb ’ s toolkit is continually being refined and includes the ability to deploy a countercyclical capital buffer for banks. this provides the sarb with the means to raise aggregate bank capital buffers during upswings in the financial cycle, and allows for the release of these buffers during downswings. currently, given the modest level of credit growth, the countercyclical capital buffer is set at zero. the fsr act has also established a twin peaks approach to financial regulation, which means that prudential and market conduct regulation are now managed by two separate entities. the sarb, as the prudential regulator, has received expanded oversight responsibilities extending beyond banks, to include insurers and financial market infrastructures. meanwhile, a new entity, called the financial sector conduct page 9 of 12 authority, has been established as the market conduct regulator. the fsr act meaningfully builds on south africa ’ s institutional strength within the financial sector by ensuring that the regulatory architecture is in line with best practices globally. in particular, establishing a clear separation between prudential and conduct regulation is an important reform because it ensures that there is adequate oversight of both the soundness of financial institutions and the fair treatment of clients. over the longer term, we believe that centralising financial regulation within the sarb will generate economies of scale and improve our ability to

as tail market and credit risks – would have not been sufficient evidence of the failures of investment decisionmaking practices at the global level, the default of lehman opened our eyes even wider and the focus shifted to counterparty risk. this source of risk became increasingly important due to the implementation of hedging and trading strategies based on derivatives contracts, which were very concentrated on a few institutions. financial globalization and international integration, which are key components of the recipe for global prosperity, acted during the crisis as a channel for the transmission of shocks to the global economy. systemic risks arose due to the interconnectedness of the financial systems and the impossibility to isolate the problems within the sectors and institutions that were hit first. the global financial architecture showed deficiencies that need to be addressed in order to strengthen the foundations of our economic systems. the role of risk management in the crisis in general, most of the causes of the crisis that i have just described relate to some extent to a clear deviation from well - established principles in the management of risk by financial institutions and investors. common sense risk management practices such as “ know your counterparties ”, “ invest only in products you understand ”, “ do not outsource credit risk management by relying exclusively on external credit assessments ”, “ do not rely exclusively on quantitative models, no matter how sophisticated they are ” were abandoned. overconfidence in : ( 1 ) the ability of portfolio managers to generate returns, ( 2 ) the advantages of financial innovation to spread in an efficient way risks and returns, ( 3 ) the adequacy of models and data used to estimate risks, ( 4 ) the efficiency of markets, and ( 5 ) the ability and willingness of monetary authorities to mitigate the effect of downturns in asset prices, did not allow the capital markets to adequately reflect upon and price - in the considerable risks that were being built. quite obviously, the crisis has taught us some lessons. expressions like “ stress - testing ”, “ black - swan ”, “ animal - spirits ” and even “ sovereign debt ” have become the new buzzwords in the financial industry. risk managers have been reminded of model risk ; portfolio managers have discovered the true face of risks ; market participants have started to think about the compound effects of risks, the dynamics of crises and the impact of systemic risks arising from macroeconomic shocks, contagion effects and “ hidden imbalances ” ; academic and practitioners have further analysed market failures, particularly based on