##ified or unscrupulous manage - ment or insufficient capital, from entering the system. unfortunately, there is no reliable formula to determine whether a bank will fail or succeed. the regulator can only apply international regulatory and supervisory norms to the supervision of banks. the south african authorities have adopted the 25 principles contained in the core principles for effective banking supervision of the basel committee for banking supervision, to construct an effective supervisory structure in the country. in deciding on whether a banking licence will be granted to an applicant, an assessment is made of the institution ’ s business plan, shareholding structure, capital base, directors and senior management, internal controls and projected financial conditions. this evaluation of an application is not a mechanical process, but is in a sense abstract and subjective. every application is regarded as unique. once a bank has been established it must be monitored continuously to ensure that it remains fundamentally healthy. this monitoring process involves a quantitative and qualitative assessment of a bank ’ s soundness. the quantitative assessment entails an analysis and evaluation of defined riskbased data received from banks on a monthly basis, to determine whether they are within prescribed prudential limits and whether their financial positions fall within acceptable norms. the qualitative assessment consists of the examination and evaluation of whether risks are being managed properly. this assessment is done within a framework of corporate governance structures. despite every effort by the supervisors to ensure a healthy banking system, they cannot guarantee the safety and soundness of individual banks at all times. where a bank encounters difficulties, special contingency measures are applied. the general approach followed in providing financial assistance is that the bank in distress is experiencing only temporary liquidity problems. by contrast, an insolvent bank or one with ongoing liquidity problems is required to exit from the banking system in an orderly, efficient manner with minimum losses to depositors and the least harm to the public ’ s confidence in the banking system as a whole. special action is taken in a case where a temporary liquidity problem is identified. as every case is different, these actions may vary from one case to another. a broad framework for the contingency procedures has nevertheless been developed. a plan for remedial action is normally drawn up, in close co - operation with the bank concerned. possible solutions may range from new capital injections by shareholders to measures designed to attract and retain large deposits. in addition, the relevant bank may be allowed to obtain liquidity by discounting liquid assets and by ut

t t mboweni : recent financial and economic developments in south africa speech by mr t t mboweni, governor of the south african reserve bank, at the eighty - second ordinary general meeting of shareholders, 27 august 2002. * * * introduction the south african reserve bank was again confronted by many challenges during the past year. i am, however, glad to say that, as on previous occasions, the bank coped well. although some ground was lost in containing inflation owing to the exogenous shocks that affected the economy, remedial action has been taken to bring the inflation rate down towards the targeted levels. a period of consolidation in the banking sector was handled in an effective manner so as to ensure continued domestic financial stability. attention was given to the regulatory structure of the banking sector to continue protecting the funds of depositors and to ensure that the intermediation of savings runs smoothly. the efficiency and effectiveness of internal administrative procedures were improved further and considerable progress was made with transforming the composition of the bank ’ s staff to better reflect the demographics of the country. recent economic developments the south african economy also did well in a rapidly changing political and economic world. a comprehensive review of recent economic developments in south africa is contained in the reserve bank ’ s annual economic report, which was released this morning. in my address i therefore wish to highlight only the following developments : south africa, like most other emerging - market economies, was affected considerably by the attacks on the united states of america in september 2001, the uncertainties that this created politically as well as in the business world, the continued relatively high levels of oil prices and the strong downturn in world economic activity. the resulting decline in the volume of our exports in the second half of 2001 affected domestic economic growth. in addition, greater risk aversion to investment in developing countries had a marked impact on capital flows to south africa. in response to the weakness in world economic activity, monetary policy in most countries became more accommodative and interest rates were brought down significantly. in some countries, fiscal measures were also taken to stimulate activity. these measures now seem to be bearing fruit and a world economic recovery should be of significant benefit to south africa. the most important effect of world political and economic developments on south africa was that they contributed materially to the volatility in the external value of the rand during the past year. after the value of the rand had been relatively stable in the first six months of 2001, it de