Towards achieving this objective, consumer education programs have been conducted, providing information among others, on the unique characteristics of Islamic banking and finance, Islamic financial products and services and the underlying Shariah principles and concepts. Enhanced consumer awareness is expected to strengthen the role of market discipline in driving the Islamic financial institutions towards strict Shariah compliance, enhanced operational efficiency, and strengthened risk management infrastructures and practices. In Malaysia, Islamic banks and conventional banks with Islamic banking windows observe similar prudential standards as imposed on conventional banks such as the minimum risk weighted capital ratio (RWCR), standards for corporate governance and risk management, financial disclosures and know your customer policy. The principles of prudent management and enhanced operational efficiency are inculcated through the minimum risk weighted capital adequacy requirement. Corporate governance standards have been enforced through specific guidelines on the code of conduct for  BIS Review 8/2006  3  directors, officers and employees of the banking institutions and guidelines on the directorship and prohibition of loans to directors, staff and their selected corporations. In addition, strict compliance with the tenets of Shariah would also ensure that the Islamic financial institutions are managed on the basis of a high degree of prudence, ethics and integrity. The Basel Committee on Banking Supervision has enhanced its capital regulation to include operational risk in the computation of capital adequacy, in addition to credit and market risks.

However, as the last line of defense, monetary policy can be used to lean against the winds of excessive asset prices. The prudential measure we implemented some time ago – a loan-tovalue limit of 90 percent for condominium purchases – is an example. The measure in itself is not particularly binding; it is more significant as a pre-emptive move designed to signal policy resolve in mitigating possible build-up of real estate bubbles. At present, the risk of real estate bubbles is not significant but should capital inflows surge again amid strong  BIS central bankers’ speeches  3  domestic demand and credit growth in real estate, macro-prudential measures may need to be tightened. On capital flow liberalization, we are moving to liberalize capital outflows so as to foster more balanced capital flows. This will help to balance fund flows and support exchange rate movements in line with economic fundamentals. In addition, with the rise of the AEC, crossborder investment will facilitate regional competitiveness and realize supply-chain synergies. Lastly, on financial sector liberalization, ongoing financial sector reform will also build financial sector resiliency to shocks from within and without. Thailand’s financial master plan, now in its second phase, continues, and focuses on liberalization through increased competition, raising efficiency, and strengthening the financial infrastructure. We also view an efficient financial sector as supportive of unleashing long-term engines of growth, such as structural change.