negatively impacted on real economic activity in south africa. as a result the bank ’ s forecasts of growth in real gdp for 2012 and 2013 have been revised down. although confidence in the financial services sector has recovered strongly in 2009 and remains at high levels, confidence still has not returned to its pre - crisis level. the banking sector plays a key role in the stability of the south african financial system and remained stable during the first half of 2012 : • the sector remained adequately capitalised in terms of the current minimum regulatory requirements ; • banks continued to post healthy profitability numbers, supported by generally improved quality of assets ; • although the banking sector ’ s total unsecured gross credit exposure increased further in the first half of 2012, it remains only about 10 per cent of total gross credit exposure of the sector ; • the sector ’ s credit exposure to counterparties with legal jurisdiction in the giips countries ( greece, italy, ireland, portugal and spain ) remained insignificant with negligible exposure to sovereigns ; • draft 2 of the proposed amended regulations relating to banks, incorporating all basel iii related changes, was published in august in preparation of the adoption of basel iii as from 1 january 2013 in south africa. the life insurance industry maintained adequate capital buffers, and healthy increases in income contributed positively to confidence levels in the industry. the financial services board as the regulator of insurance companies is in the process of implementing the solvency assessment and management framework for the insurance sector. this framework is aimed at enhancing the soundness of domestic insurance companies and protecting policyholders through a risk - based solvency regime. the domestic bond market generally performed strongly in the first half of 2012, underpinned by south africa ’ s inclusion in citibank ’ s world government bond index. domestic financial markets, nevertheless remained vulnerable to global oil and food price shocks as well as to domestic concerns following turmoil in the labour market. as important clients of banks, conditions in the corporate and household sectors play an important role in gauging the stability of the financial system : • in the corporate sector much needed investment is still lacking, but recent data suggest a slight but broad based recovery in business confidence in the third quarter ; • the household sector ’ s appetite for debt seems to be increasing further, but data show that their savings portion of disposable income also increased, albeit only marginally ; • the declining trend in consumer confidence was borne out by a weakening consumer financial vulnerability index as well as a decline in the

the situation of individual banks in a systemic context. as to the specific institutional arrangements, several alternatives have been proposed. the solution chosen by european leaders – to build the system around the ecb – is the only pragmatic one in the present circumstances. fourteen out of seventeen national central bank governors in the eurosystem already have a supervisory role. therefore, working jointly with the national supervisory authorities, the ecb will have the legal authority and technical capability to carry out this complex task successfully. as part of the european system of financial supervision, the single supervisor will closely cooperate with national authorities and with the existing european authorities, notably the european banking authority ( eba ). moving supervisory powers to the european level should not and will not change their respective roles and tasks. but some observers have suggested that the presence in the same institution of monetary policy and supervisory decisions can lead to excessive burdens, a potential confusion of roles and / or distorted incentives. these concerns must be taken seriously. to guard against them materialising, certain principles must be fulfilled. let me elaborate, based on reflections that are being conducted within the ecb ’ s governing council. rigorous separation of monetary and supervisory policies the first principle is the need for rigorous separation of monetary and supervisory policies. let me emphasise that we are taking this issue very seriously and we have envisaged ways to address it. the ecb has the advantage of having a very clear goal of price stability, expressed in a transparent and measurable way. this objective has never been compromised in the 14 years of the euro so far and it will not be compromised in the future. the ecb ’ s attachment to the primary objective of price stability remains unquestioned. the proposal of the european commission provides for the establishment of a separate supervisory board within the ecb, which will include representatives from national authorities. this proposal allows for a pooling of supervisory expertise and knowledge, and will help to ensure that decision - making lines on monetary and supervisory policy are clearly separated. to separate day - to - day activities, the governing council will define internal procedures, making a clear distinction between the monetary and supervisory functions within the organisation. we can build on a wealth of experience in this field, looking at best practices bis central bankers ’ speeches from the many central banks in europe and around the world that combine supervisory and monetary policy functions. independence and higher standards of accountability the second principle is the need to safeguard the ecb ’ s independence, implying higher standards of accountability