Ladies and gentlemen, A sustained process of excessive financial deregulation and over reliance on market discipline particularly in advanced economies which led to a prolonged cycle of optimism and  BIS Review 64/2010  3  risk taking has been widely cited as part of the root cause of the recent global financial crisis. Indeed, the pre-crisis era was a period of exuberance in financial innovation and rapid development in the conventional financial landscape. Although it was argued that financial deregulation encourages innovation which in turn result in the more efficient allocation of resources, the recent crisis has shown that there is a need to balance between market discipline and regulatory oversight. Whilst there is general support for the reform measures, there is also concern on the dangers of over-reaction by policymakers that could undermine the role of financial intermediation, and adversely affect the ultimate objective of economic growth and development. The concern is specifically on the unintended consequences of the regulatory reform. Financial stability is not an end in itself; it is a means towards achieving the ultimate goal of sustainable growth and shared prosperity. This presents the challenge for policymakers in finding the appropriate balance between preserving the resilience of the financial system versus maintaining the ability of the system to perform their intended function of delivering effective, efficient and innovative financing solutions to customers in the wider economy. Hence, the concern is that that the regulatory reforms would increase the cost of financial intermediation.

The growing internationalisation and cross-border activities in Islamic finance in recent years further accentuates the importance to enhance the ability of the Islamic financial system to withstand shocks from externalities. Moreover, access to a robust liquidity management infrastructure will reduce the cost of intermediation which is an important enabler for a more efficient and competitive Islamic financial system. Recognising that liquidity management in the Islamic financial system is still under-developed, a Liquidity Task Force was established by the IFSB in 2009 with the aim to formulate an institutional arrangement to address this need. Significant progress has already been made in this endeavor with several key proposals now at the final stage for operationalisation. When operationalised, this liquidity mechanism will be another landmark development for Islamic finance. Conclusion The recent global financial crisis has spurred the resolve of the world community to chart a new course towards greater and lasting social and economic stability with fairness and accountability. Whilst this presents a unique opportunity for Islamic finance to transition into the next development stage of greater international integration, there needs to be a higher level of resilience to withstand the new challenges it will bring. This, in essence, requires the strengthening of the financial infrastructure to preserve the soundness and stability of the Islamic financial system. Indeed, our collective will to mobilise a higher level of global cooperation in promoting this outcome will enhance the prospects of Islamic finance to contribute towards securing global financial stability and a greater shared prosperity. 6  BIS Review 64/2010