Dear Brothers,  2  BIS Review 14/2007  You all know the efforts made by Basel Committee to issue various standards governing conventional banking in the area of capital adequacy, corporate governance, and the principles of compliance, and others. These and other standards have helped create an appropriate environment for banking business which supports competition. On the other hand, a number of central banks in a number of Islamic countries, including SAMA, have established the Islamic Financial Services Board (IFSB) to promote establishment and development of Shari’a compliant financial services industry, characterized by prudence and transparency, through the adoption of existing or new international standards compatible with Islamic banking principles and methods. Since its establishment in November 2002, the Board has made great efforts in issuing international standards governing Islamic banking business through a number of committees and work teams in the membership of which SAMA participates effectively. Such standards will help setting up a strong structure to create robust banking entities able to compete in the international markets. The Board also makes great efforts in organizing conferences and workshops to promote awareness of the nature of Islamic banking. I can not, on this occasion, but thank the Board's members. Dear Audience Saudi Arabian Monetary Agency exerts persevering efforts to promote awareness and emphasize the importance of applying international standards that help manage risks, enhance competition and create strong entities. Therefore, this symposium is the first of its kind on Islamic Financial Services Board's standards which complement the guidelines of Basel II.

Should the situation change, nothing has been done that would impair our ability to fulfil our primary mandate and preserve price stability. Many tools are available to absorb liquidity, if it proves necessary. Concerns are also expressed in the euro area about purchases of government debt as a form of “monetary financing” of the government. As you know, such purchases are explicitly allowed for in the Treaty. There is no legal issue, here. What about the economics? This question can be broken down into two. First, the market impact. True, these purchases may lead to lower interest rates. This is their purpose. OMTs will only take place if and when the Governing Council has determined that bond markets are no longer functioning properly, hence interest rates are distorted. A last, serious, concern is moral hazard. Lower interest rates triggered by secondary purchases could give rise to bad incentives, impede market discipline and delay necessary fiscal adjustment efforts. This is the very reason why strict and explicit conditionality is attached to OMTs. 4. Central banks have been active; they have been audacious; but they do not have unlimited power. This may be a good time to reflect upon what monetary policy can and cannot do. I will concentrate on one specific question: the so-called “decreasing returns” of non-conventional monetary policy. The argument goes as follows: balance sheet expansion and low interest rates create potential imbalances in the financial sector.