(2) Daniel K. Tarullo, member of the FED Board of Governors finds the reasons in replacing the basic regulatory framework established after the Great Depression 1929–1933, which mostly limited the commercial banks to traditional lending activities, with the regulatory framework that in the 1970s started to install deep changes in the organization and  BIS Review 90/2010  1  regulation of the financial markets, culminating with the adoption of the Gramm-Leach-Bliley bill in 1999. He says that “with the innovations, the traditional commercial banking business model was put under strong pressure on both sides: on the liability side in the balance sheet of the banks in the form of more attractive savings instruments, such as the funds for investing on the money market, and on the assets side, with the growth of public companies and international competition”. Until the end of the century the restriction cluster on the commercial banks from the great depression era was replaced with a regulatory setting in which they could operate on a national level, to involve in a much broader set of activities and to practically join with every kind of financial companies. Tarullo says, that is how the highly complex financial holding companies were started... the independent investment banks grew in a group of big, complex and highly indebted companies... the financial engineering was quickly changing the character of the entire financial services sector. Securitization and accompanying instruments united the capital markets and traditional lending activities, fueling the growth of the so-called shadow banking system.

Last year alone, oil revenues in the Gulf Cooperation Council countries were estimated to be about $ billion.3 Mainland China has been one of their favourite investment destinations given its strong economic growth and emerging market opportunities. 9. On the other side, Mainland China is facing huge funding needs for infrastructure development projects. As China’s global financial centre, Hong Kong is an important conduit for Mainland companies to access the international markets and the preferred offshore capital raising centre for Mainland issuers over the past decade. This is apparent from the fact that over half of our stock market capitalisation is Mainland-related and from the high participation of Mainland entities in our dim sum bond market. 10. Against this backdrop, we believe Hong Kong is well-placed to meet the strong investment demand from the Middle East and other parts of the world for Mainland-related Islamic financial products. At the same time, Hong Kong can also provide an ideal platform for issuers from the Mainland and other parts of Asia to issue Islamic financial instruments for satisfying their funding needs. Bringing Islamic capital markets to the mainstream 11. Addressing one of the key issues to be discussed today, Hong Kong’s involvement in Islamic finance will also help to bring Islamic capital markets to the mainstream in two ways: provide a level playing field and encourage market participation in Islamic finance. 12. To bring Islamic financial products to the mainstream, a key task would be to level the playing field with their conventional counterparts.