Today the South African Reserve Bank (SARB) released the September 2008 edition of the Financial Stability Review. This edition focuses on the six months to June 2008 and is part of the SARB's approach to encourage debate on financial stability issues, and enhance the understanding of the financial system and its strengths and weaknesses.Over the past six months global financial market turbulence has impacted severely on consumer and investor confidence worldwide. More than a year after the start of the turmoil, difficult conditions persist and the resultant financial disruptions are weighing heavily on real economic growth in industrialised economies. As the real effects are becoming more broad-based and the turmoil more protracted, the potential for its effects to spread more widely is rising. Although many emerging-market economies thus far resisted the direct spillovers of the credit crisis and have shown some resilience to the slowdown in economic growth, they remain vulnerable to the indirect effects of the global financial crisis. In the Southern African Development Community, economic growth is healthy and is expected to remain fairly buoyant, partly as a result of continuous efforts to enhance regional integration. The South African financial system has been largely protected against the global financial market turmoil. South African financial institutions have very little direct exposure to sub-prime-related assets and their balance sheets are likely to remain healthy. Financial markets are, however, highly integrated and the prolonged global financial turmoil could impact the South African economy through contagion risk. Increasing volatility in financial markets, further repricing of risks and financial assets, increasing cost of funding and possibly reduced flows to emerging market economies are threats to the local economy and financial system. There is consensus, however, that the South African financial system will weather the storm and there is no immediate threat of a crisis of the proportion of that being managed in the US for instance. In South Africa corporate and household budgets became more strained given higher lending rates and increases in food and fuel prices. Business confidence and consumer confidence also declined significantly in the process. While the annual growth rate of credit to the corporate sector decelerated further, the annual growth rate of credit to the household sector remained relatively high. The ratio of household debt to disposable income, however, seems to have peaked. In the regulatory environment, the release of new legislation to address outdated company and financial laws, the provision of more enforcement powers for regulators and a highly compliant and internationally accepted national payment system contribute to the further strengthening of the financial system in South Africa. The joint International Monetary Fund and World Bank mission team indicated broad satisfaction with the financial system’s inherent design and adherence to current international best practice standards following the Financial Sector Assessment Program update process.  Contact Person:Dr Hendrik NelAssistant General Manager: Financial Stability DepartmentSouth African Reserve BankTel: +27 12 313 4293Email:hendrik.nel@resbank.co.za