SOUTH AFRICAN RESERVE BANKBANK SUPERVISION DEPARTMENTANNUAL REPORT1999 Issued by Authority MISSION TO PROMOTE THE SOUNDNESS OF BANKS THROUGH THE EFFECTIVE APPLICATION OF INTERNATIONAL REGULATORY AND SUPERVISORY STANDARDS PHILOSOPHYMarket principles underlie all activities and decisions, and we strive to project an image of professionalism, integrity, credibility and impartiality at all times. We subscribe to a service-oriented approach, which entails accessibility and integrity, and a high premium is placed on ethical behaviour at all levels of activity. A relationship of mutual trust between this Department and all other key players is regarded as essential and is built up through regular open communication. ADVICE TO BANKERS OF 1863 ... AND OF 2000It may serve us all well to remember that the basic principles of sound banking practice have remained valid for well over a century. The advice that Hugh McCulloch, then Comptroller of the Currency and later the Secretary of the Treasury, gave to bankers in December 1863, and some of which is quoted below, remains as relevant today as it was then: "Let no loans be made that are not secured beyond a reasonable contingency. Do nothing to foster and encourage speculation. Give facilities only to legitimate and prudent transactions. Make your discounts on as short time as the business of your customers will permit, and insist upon the payment of all paper at maturity, no matter whether you need the money or not ... In no other way can you properly control your discount line, or make it all times reliable. Distribute your loans rather than concentrate them in a few hands. Large loans to a single individual or firm, although sometimes proper and necessary, are generally injudicious, and frequently unsafe. Large borrowers are apt to control the bank; and when this is the relation between a bank and its customers, it is not difficult to decide which in the end will suffer ... Treat your customers liberally, bearing in mind the fact that a bank prospers as its customers prosper, but never permit them to dictate your policy. If you doubt the propriety of discounting an offering, give the bank the benefit of the doubt and decline it; never make a discount if you doubt the propriety of doing it. If you have reasons to distrust the integrity of a customer, close his account. Never deal with a rascal under the impression that you can prevent him from cheating you. The risk in such cases is greater than the profits. Pay your officers such salaries as will enable them to live comfortably and respectably without stealing; and require of them their entire services. If an officer lives beyond his income, dismiss him; even if his excess of expenditures can be explained ... A man cannot be a safe officer of a bank who spends more than he earns.The capital of a bank should be a reality, not a fiction, and it should be owned by those who have money to lend, and not by borrowers ... Pursue a straightforward, upright, legitimate banking business. Never be tempted by the prospect of large returns to do anything but what may be properly done under the National Currency Act. 'Splendid financiering' is not legitimate banking, and 'splendid financiers' in banking are generally either humbugs or rascals." BANK SUPERVISION DEPARTMENT Annual report for the calendar year ended 31 December 1999 in terms of section 10 of the Banks Act, 1990, and section 8 of the Mutual Banks Act, 1993 The purpose of this report is to present an overview of the objectives and activities of the Bank Supervision Department of the South African Reserve Bank, with particular reference to the period from 1 January 1999 to 31 December 1999.