Similarly, the liability structure of the Islamic banks is characterized by two distinct categories of deposits: the demand deposits which are not subject to the risk associated with the banking business and for which the principal is guaranteed, and the investment deposits which involve risks and hence, eligible to share the profits earned from the banking business. Given that the returns are not predetermined, profit-sharing depositors of Islamic banking institutions, as the capital provider will have to bear any of the losses. This places a higher degree of fiduciary risk on the Islamic financial institutions in ensuring that the investment deposits funds are managed in the most effective and efficient manner. This is further compounded by competition in managing the liquidity in the system. The profit share distributed needs to be competitive relative to that earned and paid by the conventional banks. This is important to avoid a shift of deposits and to retain the funds in the system. A central feature of the regulatory framework for Islamic financial institutions is financial transparency and disclosure. Market conduct disclosure and customer relationship management form the core of these principles. Addressing the information asymmetry between Islamic banking institutions and the depositors is of vital importance. Under the Mu-da-ra-bah principles, there is a need for disclosure by Islamic financial institutions to investors on how the funds are being managed so as to provide the assurance that the underlying business operations, the risk profile and the risk control mechanisms are in place.

Payment flows in these systems again indicate a significant increase in cross-border interbank trading after the introduction of the euro. In terms of value, cross-border transactions currently account for 40% of all kinds of TARGET payments, for instance. The degree of integration is certainly lower for securities settlement, even though a process of consolidation has been taking place. Third, the degree of integration of securities market activities is usually misjudged, since attention is focused on the costs and difficulties of individual investors when investing abroad. The picture is completely different for wholesale activities. The corporate finance markets for major customers are actually already quite highly integrated. To give an example, the share of domestic book-runners for bonds issued by euro area companies dropped from over 80% in 1995 to 36% in 2000. As in many other securities and derivative market activities, the market structure relies on large European or global financial groups. The same trend towards a high level of integration also holds true of wholesale asset management, with investments being increasingly diversified across borders. In terms of volume, growth has been very impressive in the euro-denominated securities markets, until the very recent slowdown and increased market uncertainty after the tragic events in the United States. The deepening of the markets has been particularly strong for bonds – euro-denominated bonds issued by private entities doubled during 1999, and market activity remained quite strong until the summer of this year.