Zeti Akhtar Aziz: Enhancing financial linkages towards economic prosperity Joint opening remarks by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Joint High Level Conference on Islamic Finance: “Enhancing Financial Linkages Towards Economic Prosperity”, Jakarta, 18 July 2011. *  *  *  Bank Negara Malaysia sangat berbangga kerana dapat bekerjasama dengan Bank Indonesia dalam menganjurkan Persidangan Bersama Peringkat Tinggi Kewangan Islam bertema “Enhancing Financial Linkages Towards Economic Prosperity”. Fokus khusus persidangan ini ke atas kewangan Islam dan perkembangannya di peringkat antarabangsa, telah memperlihatkan perkembangan pesatnya sejak beberapa tahun kebelakangan ini, yang turut menyumbang kepada hubungan ekonomi dan pertumbuhan kewangan antarabangsa. Persidangan hari ini mempertemu peserta industri, penggubal dasar dan pengawal selia, serta ahli akademia dan pakar Shariah dari Malaysia dan Indonesia untuk membincangkan peluang-peluang kerjasama. Pengukuhan jalinan kedua-dua sektor kewangan Islam kita bukan sahaja akan menyumbang dalam membangunkan serta mengukuhkan lagi industri ini, malah ia akan turut memanfaatkan secara optima sumber kewangan serantau dan juga meningkatkan keupayaaan untuk mengurus cabaran semasa dalam persekitaran antarabangsa yang sentiasa berubah. Izinkan saya mengambil kesempatan ini untuk menyampaikan penghargaan kepada Yang Terhormat Bapak Prof. Dr. Boediono, Wakil Presiden Republik Indonesia kerana sudi menyampaikan ucaptama di persidangan pada hari ini, dan merakamkan penghargaan kami kepada Duli Yang Teramat Mulia Raja Nazrin Shah, Raja Muda Perak, Malaysia yang telah mencemar duli untuk menyampaikan titah di persidangan ini. Izinkan saya untuk meneruskan ucapan ini dalam Bahasa Inggeris.

Without that, human and financial resource allocation either side of the ring-fence will become blurred. For example, without separate debt issuance for retail and investment banking, the cost of debt for a big bank will be a blended mix. The implicit subsidy in funding costs would then remain and with it one of the main distortions associated with too-big-to-fail. Only time will tell whether cultural separation can be achieved under the existing structural reform proposals. In the go-go years, will these reforms be sufficient to prevent the grass always appearing greener on the riskier side of the (ring-)fence? This is the acid test of the structural reform agenda. Where next? Progress has been made over the past few years towards eliminating too-big-to-fail, with further progress on implementation planned. But today’s task is even more daunting than before the crisis. The big banks are even bigger. The system itself is more concentrated. And  BIS central bankers’ speeches  7  despite reform efforts, the market’s best guess today about tomorrow’s implicit subsidy is farlarger than before the crisis struck, at over $ billion per year (Chart 3). The market believes that illicit state promise is even more likely to be kept. The wrong conclusion to draw would be that existing reforms have failed or are unnecessary – quite the contrary. Rather it is that these reform initiatives, while necessary, may be insufficient to eliminate the too-big-to-fail externality. If so, what are the alternatives? Several have been mooted. Re-sizing the capital surcharge is one possibility.