The Bank assesses on a continuous basis the stability and efficiency of key components of the South African financial system.
The Bank's approach to financial system stability places considerable reliance on market forces to achieve financial system stability. Any intervention should, therefore, be at the minimum level needed to contain systemic risk. Safeguarding of financial system stability requires adequate information about the behaviour of financial market participants, regardless of the institutional arrangements.
The prudential regulation and supervision of banks assist and complement the Bank in its pursuit of financial system stability. It has, however, become increasingly clear that the financial system may be vulnerable as a result of inherent imbalances between the real and financial sectors of the economy. Such vulnerabilities would not be revealed by the supervision of individual institutions.
For this reason the Bank and other central banks have gradually placed increased emphasis on macroprudential aspects of financial stability. Financial system stability cannot be achieved by the Bank in isolation. All financial system participants should act in ways that enhance the robustness of the financial system, which requires good and reliable information about trends and developments in the financial system.
Notwithstanding the best efforts of central banks and other regulators to detect and prevent instability, financial sector crises can still occur. Under these circumstances the Bank liaises with the National Treasury and other regulators such as the FSB in planning and co-ordinating the responses of the authorities to alleviate the impact of financial crises on the real economy.
This includes the development and maintenance of safety-net policies and procedures, and the co-ordination of contingency planning for systemic crisis resolution. The social cost of financial system failure usually exceeds the private costs, which justifies the role of central banks as the source of emergency liquidity assistance in times of banking liquidity problems.