And where the system needs strengthening as a whole, we can change capital requirements to put additional resilience in, either across the board through countercyclical requirements, or to particular sectors, through sectoral capital requirements. We are matching the strength of the banking system to the scale of risk it faces, so you can be more confident that credit will be there when you need it. Resilient underwriting standards We have to nurture more than the resilience of the banking system. Your balance sheets have to be resilient too. Over-gearing of your industry has been a major driver of instability in the past, making you vulnerable to the slightest change in sentiment. In part that’s the result of lenders offering deals in the good times that present even the most responsible investors with an impossible choice: gear up to uncomfortable levels or be forced out of the market. To avoid that Hobson’s choice, any slipping of lenders’ standards has to be addressed. That’s why we’re now reviewing the standards of major lenders regularly. 1  2  Carney M (2014) “The future of financial reform”, presented at a Monetary Authority of Singapore Lecture, November 17, 2014. BIS central bankers’ speeches  This year we found loan-to-value ratios rising and interest cover ratios falling, but from a very conservative starting point. We’ll keep watching this, and there will be a new survey in coming months. We know that the importance of major UK lenders in financing you has almost halved since the crisis.

The enhanced depth of the Islamic financial markets has also increased its attractiveness as an asset class for investment. These developments have resulted in an extensive range of Islamic financial products and services that is being offered to consumers and businesses. The third dimension in which there has been significant evolution is in the regulatory and legal framework for Islamic finance which has taken into account the distinct features of Islamic financial transactions. This has ensured that the growth and developments of Islamic  BIS Review 23/2008  1  finance is accompanied by the corresponding development of the supporting legal, regulatory and supervisory framework to ensure its soundness and stability. The establishment of the Islamic Financial Services Board in 2002 also marked an important milestone in the development of the prudential regulatory standards and best practices for Islamic financial institutions. Its establishment has also contributed to the harmonisation in the development of Islamic finance across different jurisdictions. Fourthly, the international dimension of Islamic finance has rapidly gained significance as it evolves to become an increasingly important part of the international financial system, and as is becomes poised to contribute towards greater global financial integration. Islamic financial institutions have now ventured beyond their domestic borders and funds raised in Islamic financial markets in different jurisdictions have drawn investors from financial centres across the globe. As market players across continents participate in the expansion of interregional investment flows, it has enhanced financial linkages among the major regions.