Zeti Akhtar Aziz: Financial stability – regional and global cooperation Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the 8th Islamic Financial Services Board Summit Luxembourg, Panel Session 2 “Financial Stability: Regional and Global Cooperation”, Luxembourg, 12 May 2011. *  *  *  It is now more than three years since the onset of the global financial crisis. Yet, its repercussions continue to reverberate across the world. Efforts to return the global economy on a sustainable growth trajectory have been challenged by risks and uncertainties that continue to prevail in many parts of the world. Most of all, this crisis has demonstrated the greater degree of international interdependence arising from the increased international financial and economic integration. Global financial stability has therefore become a shared responsibility. In today’s more interconnected financial systems and stronger economic interlinkages, the enormous challenge in securing effective and efficient functioning financial systems and financial stability will demand for unprecedented collective action and international cooperation. It is my pleasure to be here in Luxembourg on this occasion of the 8th IFSB Summit on “Enhancing Global Financial Stability: Challenges and Opportunities for Islamic Finance”. I am honoured to speak on the scope for international collaboration and cooperation in Islamic finance in our collective endeavor to safeguard financial stability. The internationalisation of Islamic finance and its increased role in the international financial system Since the turn of the millennium, the internationalisation of Islamic finance has accelerated.

The recent financial crisis has also revealed the failure to understand the inter-relationship between financial and the broader sector, particularly in understanding the potential spill-over and second-round effects that are transmitted between sectors. Post-crisis regulatory efforts have focused on macro-prudential measures to complement micro-surveillance and supervision. This entails horizontal assessment of risks across institutions, sectors and national borders, as well as risks in asset markets across time. This is particularly relevant for the Islamic financial services sector. Given the close ties of Islamic finance with the real economic sector through the various modes of Islamic financing contracts, a complete understanding of the entire risk spectrum often encounters much difficulties. It is therefore important for the regulators to also establish an integrated framework of macro surveillance for Islamic financial activities across jurisdictions. The global database for prudential Islamic finance statistics to be initiated by the IFSB, would therefore need to go far beyond ensuring standardised data collection among jurisdictions, but also to enable the generation of various macro and financial indicators, and global sharing of best practices in macro surveillance. The engagement by supervisors would also contribute towards the understanding of the systemic risk and its origins and would support the maintenance of timely and accurate economic and financial data. This would in turn contribute towards more effective surveillance and management of financial stability issues.