The second key area of debate concerns the design of the institutional framework for financial stability. The main issues have tended to centre on the role of the central bank in  BIS Review 24/2010  3  financial stability and as to whether there should be a single or multiple supervisory authorities. Given that the central bank is the lender-of-last-resort in a crisis, the central bank is invariably in the frontline of action to restore stability. While there is no general agreement on the optimal structure for the supervision function, it is recognised that financial systems have become increasingly complex and interconnected and whether a country adopts an integrated model or a model that is organized along sectoral lines, effective coordination is critical to support assessments of the overall risk exposures in the financial system. Moreover, the potential for regulatory arbitrage should be avoided. A further case made for central banks to assume the banking supervision function is the informational efficiencies particularly for effective crisis management. The insights gained from the economic analysis and market operations performed by central banks for monetary policy objectives also contributes significantly towards more informed financial supervision. This includes providing a better understanding of the potential for macro-prudential measures as part of the supervisory responses. The chosen supervisory structure needs to credibly demonstrate that it is able to respond and adapt effectively to the fast-changing environment.

It has also opened up the prospects for developed economies to forge stronger financial linkages with these dynamic growth regions of Asia and the Middle East. Islamic finance is well positioned to be a vehicle on the New Silk Road as the enabling supporting infrastructure is already in place. The required regulatory and legal frameworks for Islamic finance have also been established, not only growing in a number of countries in Asia and the Middle East, but also at the international level. It was with the establishment of the prudential standard-setting body, the IFSB in 2002 based in Malaysia that efforts to enforce common prudential standards have significantly progressed. Efforts towards the harmonisation of Shariah interpretations and issues concerning mutual recognition are also at an advanced stage. Today, Malaysia has a comprehensive and well-developed Islamic financial system, including a vibrant banking and takaful sector, and well-developed Islamic capital and money markets that operates in parallel with the conventional system. Our sukuk market is the largest in the world. The Islamic financial system in Malaysian is also well-supported by comprehensive Shariah, legal and regulatory and supervisory framework to ensure the soundness and stability of the Islamic financial system. We have also invested in human capital development to ensure a deep pool of talent and expertise to support the development of Islamic finance. For this purpose, Malaysia has established the International Centre of Education in Islamic finance (INCEIF) and The International Shariah Research Academy (ISRA) to support advanced education and research in Islamic finance.