For a period during the winter, major Swedish companies encountered difficulty in obtaining funding on the international credit markets and so turned to the Swedish banks, with the result that they squeezed out smaller companies, to a certain degree. The Swedish economy, which is strongly dependent on exports, was also hit hard by the collapse of world trade. Many foreign  companies reduced their investment levels in order to deal with their liquidity problems, which subdued demand for Swedish export goods. Some lessons from the crisis What lessons can be learned and what do these lessons mean in terms of economic policy and the actions of the central banks in the future? Here are a few thoughts, although the list is far from exhaustive. There are serious shortcomings in regulation and supervision. This is entirely evident, forming the subject of intensive discussions among politicians and in the media. It is beyond the scope of this speech to provide a comprehensive account, so I will make do with pointing out a couple of the overall problems. One main problem has been that banks and other financial institutions have had too little capital in relation to the risks they have taken in their balance sheets, whether these risks consisted of traditional lending, the holding of various hard-to-value securities or large shortterm positions taken when trading. This meant that many financial companies, for many years, were able to provide high returns on equity, higher than in most other industries.

The adoption of these standards would contribute towards promoting greater transparency, recognition and consistency – thus facilitating greater cross-border Islamic financial transactions. We have given priority in promoting consistent and transparent standards on Islamic financial contracts. The development of Shariah standards is aimed as a point of reference on all Shariah principles governing Islamic financial contracts, and the standards is envisaged to become the globally preferred standards. The standards specify the requirement of Shariah and its application for product offerings. The standards are issued based on the three tenets of Shariah contract – the contracting parties; offer and acceptance; and subject matter of the  BIS central bankers’ speeches  1  contract. The other part of these standards specifies the execution or the operational aspects of the contract that covers the regulations, accounting, risk management, the appropriate legal documentation and the disclosure. Hence, these standards provide greater clarity, transparency and disclosure to each Islamic financial transaction. Secondly, is to have proper legal infrastructure and dispute resolution mechanism in place to safeguard Islamic finance transactions and integrity of the financial system. To share our experience, Malaysia enacted a complete set of legislation and guidelines for Islamic finance, and instituted tax neutrality in order to create a level playing field vis-a-vis conventional finance. Recently, the central bank introduced the Islamic Financial Services Act 2013 to replace the existing Islamic banking and takaful laws. The comprehensive legal framework provides a clear focus on Shariah compliance and governance in the Islamic financial sector.