We believe that a stable and dynamic financial system that serves the needs of the economy and the public cannot be built on regulation alone. Responsible and competent board and senior management who manage the risks of their financial institutions well are also critical. Growing interest in Islamic finance 10. The general outlook for Islamic finance remains positive despite the negative spillover from the financial crisis. As a basic tenet, Islamic finance emphasizes that financing activities should underpin real commercial activities. Due to its widening acceptance and its appeal as a means for ethical investment, the industry is expected to continue growing at twice the pace of its conventional counterpart. As such, surveys estimate that the industry will soon cross the $ trillion mark in total assets. 2  BIS Review 84/2010  11. But similar to conventional banks, Islamic financial institutions have been impacted by the economic slowdown and resulting weaker asset prices. Some financial institutions have been badly affected by the over-concentration in illiquid assets and overlyoptimistic business plans. The Islamic industry therefore needs to take heed of the lessons learnt from the current crisis and pay greater attention to issues related to capital adequacy, market liquidity and risk management. Overcoming these challenges will require strong cooperation within the industry and across different jurisdictions. MAS, as a full and Council member of the Islamic Financial Services Board (IFSB) since 2005, will continue to advocate and support multi-national initiatives that would bring about such improvements. Singapore as a global city for business and finance 12.

In practice, monetary policy has to some extent neglected the price stability objective and led to unnecessarily high unemployment. Against this background, it is remarkable that monetary policy in Sweden nevertheless seems to have been aimed at influencing household indebtedness. Any problems arising from household indebtedness could be better managed by other means than the policy rate, such as mortgage caps and tax regulations, which, unlike monetary policy, are effective in both the short run and long run (Svensson 2012c). The Riksbank’s mandate – price stability and the highest sustainable employment – demands a lower policy rate and policy-rate path I thus believe that monetary policy should be more expansionary than it is at present, that is, the policy rate and the policy-rate path should be lower. The Riksbank’s mandate should, in line with the Sveriges Riksbank Act and its preliminary works, be interpreted as price stability and the highest sustainable employment (Svensson 2012b).5 The highest sustainable employment is in practice the same as the lowest sustainable rate of unemployment. Every monetary-policy decision thus entails setting the repo rate and selecting the repo-rate path that best stabilises inflation around the inflation target and unemployment around a long-run sustainable rate.6  3  Andersson, Palmqvist and Österholm (2012) discuss the Riksbank’s target attainment during a different period, that is a period beginning in 1995 instead of in 1997, which gives an average of 1,5 per cent for CPIinflation in 1995–2011 instead of 1.4 per cent. During 1995–1996, CPI inflation was 1.8 per cent, which increases the average.