Ladies and Gentlemen, the financial turmoil facing the world today has affected all of us and we as regulators are trying to ensure stability in the financial markets. In this regard, the Bank of Zambia has put in place measures to moderate the impact of the global meltdown on the Zambian financial system. The Government also remains resolved to continue with prudent fiscal policies and economic management, which have seen a buoyant financial sector in Zambia, thereby resulting in the mushrooming of branches in different locations of the country, such as the one we are inaugurating today. In spite of the uncertainties in the global economy, Distinguished Guests, we remain confident that the financial sector in Zambia will rise above the challenge and continue to provide services to the communities where they operate. Ladies and Gentlemen, I have stated at various fora that it is important for banks in Zambia to take actions which support the development of our economy: •  Banks need to open more outlets such as this one, to increase our people’s access to banking services, thereby empowering our citizens  •  Banks should provide more loans to the productive sector, such as Agriculture and SMEs. In striving to meet these demands, banks must always comply with the regulations as stipulated in the Banking and Financial Services Act to ensure the safety of customers’ deposits. I am proud of the stability that has been exhibited by our economy.
The financial system is built on a fundamental (and ever-present) mismatch. Savers want access to their money instantly, if necessary. But borrowers are usually unable to give it to them anything like as quickly. BIS Review 142/2007  1  The banks have traditionally bridged that gap. But the only way they can do so is to borrow short and lend long. This mismatch makes them vulnerable. That is why governments have imposed regulations on the banks, requiring them to hold reserves against emergency. But if there is a complete loss of confidence among depositors, there is really not much an individual bank can do. The central bank is usually obliged to help. Modern innovations in the financial system have seen banks, rather than holding on to the loans that they have made, parcelled them up and sold them on. The aim was to disperse risk; in the case of default, it was better for a lot of investors to lose a little than for a few banks to lose a lot. However, all the clever types of “securitization and structured products” have not eliminated the fundamental mismatch. Someone still has to borrow short and lend long. Northern Rock, the stricken British bank in recent weeks, is a case in point. In relation to this case, I just want to paraphrase an interesting article in the latest publication of The Economist headed “A generation has prospered from the wholesale transfer of risk through securitization. Now it is paying the price”.