The case study that will provide the experience of Palau regarding the failure of one of its biggest bank, will not only remind us of the reality and the crucial role of bank supervisors, but it should bring us together to learn from it and be better prepared for the possibility of such crisis occurring in our own respective countries. I also note with interest that you will be covering the Basel Revised Core Principles which, as I mentioned earlier, reflect the ever changing environment in which banks operate, that international standards continue to change as the environment of risks also changes. And as part of the global financial system, we all need, to some extent, to adapt to such changes. Although some of these changes may not directly affect us due to our narrow market base, others can impact on our financial system indirectly. One of these changes would be the Basel II new capital adequacy framework that has already been advanced for some years for adoption. From experience, the new Capital Accord will have significant impact on our limited resources and our capacity to administer and properly implement. In this connection, I am pleased to acknowledge the presence of resource experts, Ms Elizabeth Roberts, Director of the Financial Stability Institute (FSI) at the Bank for International Settlements, Basel; Messrs Graham Johnson and Chris Gaskell from the Australian Prudential Regulatory Authority (APRA); Mr Kim Norris, Director, International Advisory Group, OSFI, Canada; and experts from the IFC.

Firstly, large investment projects of long-term gestation by the private sector can now source financing mainly from the bond market as opposed to only relying on the banking system. As a consequence, the expansion of the private debt securities market has now exceeded the public debt securities market. With the recovery of private investment since 2003 and its increased momentum there has been growing expansion of the bond market. Secondly, the liberalisation of the bond market to allow non-residents to raise funds from our domestic bond market has also contributed further to the growth of the market. Thirdly, an important development of Islamic finance in Malaysia is the development of the sukuk market. In 2007, the sukuk issuance has exceeded the issuance of conventional bonds. This has increased the diversity of asset classes and instruments in the Malaysian bond market. Fourthly, there has been a major structural enhancement in the capital market intermediaries with the introduction of investment banking in 2006. With the permitted foreign interest in investment banking raised to forty-nine percent, foreign participation is encouraged. In addition, Islamic banking institutions, including Islamic subsidiaries may conduct investment banking activities. These capital market intermediaries are also reinforced by the strengthening of the institutional investors and the fund management industry. The growing sophistication of investors has resulted in increasing diversification of portfolios with growing interest in the bond market. Foreign holdings of debt securities outstanding have also increased from less than 1% in 2000 to 15% in 2007.