This would need to be supported by an efficient court system that can effectively deal with all Islamic banking and finance cases, whose decisions are enforceable over the range of financial issues such as contracts, bankruptcy, collateral and loan recovery all of which are essential for businesses to operate. The legal framework should also deal with supervisory issues, including the relevant regulatory agencies involved in the supervision of Islamic financial institutions and encompass the licensing and conduct of Islamic banking business. The relevant agencies should have clear responsibilities and objectives to ensure effective financial supervision. While the conventional banking system is guided by the Basel core principles which outlines the minimum requirements for the supervisory regime, these principles need to be reviewed from the perspective of Islamic banking, taking into account the unique characteristics and risks involved in Islamic banking and its products and services. A fundamental issue is the setting of prudent and appropriate minimum capital adequacy requirements for Islamic banks. Such requirements need to reflect the risks that the banks undertake. The framework devised would need to incorporate fundamental Islamic concepts. The principle of Mudharabah, for example, creates a class of depositors that can also be construed as quasi-shareholders. Similarly, risk weights assigned to individual asset components need to reflect the nature of inherent risks involved. It is not as straightforward as a debtor-creditor relationship in conventional banking but also needs to include other inherent risks arising from the investor-entrepreneur relationship that is inherent in Islamic banking.

Thomas Jordan: The Swiss National Bank’s monetary policy in turbulent times Summary of a speech by Mr Thomas Jordan, Member of the Governing Board of the Swiss National Bank, at the Geldmarkt-Apéro of the Swiss National Bank, Zurich, 19 March 2009. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  The financial market crisis has now widened into a global economic recession, and the Swiss economy is feeling the full impact. The SNB has taken prompt and decisive action in response, and substantially relaxed its monetary policy. In mid-March, as a result of the sharp economic downturn since December 2008, a further major expansion of monetary policy became necessary. However, the SNB was already operating a de facto zero interest rate policy (ZIRP), and the natural limits of conventional monetary policy had been reached. The SNB therefore took three unconventional measures: increasing the number of transactions in repos with longer terms, purchasing Swiss franc bonds issued by private sector borrowers, and buying foreign currency on the open market. In implementing these unconventional steps, the SNB has demonstrated that, even in an environment of zero interest rates, it still has a number of tools at its disposal which allow it to react flexibly to any undesired tightening of monetary conditions. In this context, it is important not to misinterpret the foreign currency measures as the start of a “beggar thy neighbour” policy.