in this region, we are in a position to be on a faster track to adopt the new requirements. in this endeavour, an appropriate balance will be maintained between our priority to substantially strengthen the capacity of the banking system to absorb future shocks arising from financial and economic stresses, and avoiding material competitive distortions that can arise from uncoordinated moves between countries on specific elements of the framework. through the continued rigor of our stress testing requirements, the expectations are for banks and insurers to operate at levels that remain sound even under stressed conditions. this will be further reinforced with the implementation of pillar 2 from 2011, which will accord greater focus on the individual banks ’ own internal capital adequacy assessment processes to determine the adequacy of capital against their specific risk profiles and capital management strategies. with respect to liquidity, our existing liquidity framework will be enhanced in 2011 to bring it in line with the basel iii standard, while making appropriate customisations to take into account the specific structural characteristics of our market. we will also issue additional guidance to promote more stable funding structures that will increase the robustness of bank liquidity positions, particularly during periods of stress in funding markets. these quantitative liquidity standards will be further complemented by principles for sound and effective management of liquidity risk. while major agreement has been reached on most areas concerning capital and liquidity, proposals in other areas including the non - risk - based leverage ratio, countercyclical capital buffers and the supervision of systemically important financial institutions continue to be a work in progress at the basel committee. it is important that bankers including board members remain current on all these developments and understand their implications on our domestic and regional financial landscape. in the insurance and takaful industry, there have been continued improvements in corporate governance practices and further strengthening of the capital positions of individual institutions. these improvements have however, been uneven between institutions and overall progress can be further accelerated. we will monitor closely the implementation plans by insurers to meet and maintain internal capital targets that are above the regulatory minimum level. given the increasingly more complex and competitive environment going forward, smaller insurers, particularly in the general insurance industry, need to strengthen their ability to comply with the higher prudential standards. the option for mergers to form stronger and more resilient institutions would accelerate this process. in the critical area of corporate governance, we are well advanced in our concerted efforts to strengthen the boards of financial institutions through the financial

designed programme. the bank will also issue guidelines on the conduct of business for retail financing for responsible practices in consumer lending. the aim of these combined measures is to reinforce the conditions for financial stability, promote a sustainable housing market and deliver socially desirable outcomes through responsible lending and borrowing behaviours. iii. financial regulatory reforms these measures foreshadow our broader plans and priorities in the area of financial regulatory reforms going forward. while banks and insurers in malaysia have avoided the pitfalls that have set back some of the largest and most successful global financial institutions, our ambition to develop a dynamic and robust financial system demands that we remain firmly focused on continuously strengthening the foundations for financial stability. this will take into account our assessment of the domestic conditions, and the nature and direction of risks in the financial system. the regulatory regime will be based on the framework of international standards, specifically those set by the basel committee on banking supervision, the international association of insurance supervisors and the islamic financial services board. following the global financial crisis, the most profound changes in the international standards have been focused on the banking system. however, as a result of more prudent risk management, a rigorous stress testing discipline and being subject to close supervision by the central bank, banks in malaysia are largely already operating at more conservative capital levels than is being suggested under basel iii. while it is recognized that the global reforms have been designed to address problems not faced in our financial system and are guided by different value and incentive systems, it is still important that we embrace initiatives that will enable us to avoid the same such mistakes. as more of our banks and insurers venture abroad into the regional markets, financial institutions will also be assessed by investors, analysts and market participants against these global standards. moving forward, after a consultative process with the industry, the following enhancements will be incorporated to the risk weighted capital adequacy framework for banking institutions : higher capital requirements to support risks in trading activities, securitizations and counterparty credit exposures ; strengthened definitions and criteria for the recognition of tier 1 and tier 2 capital ; and higher levels of common equity, tier 1 and total minimum capital requirements which also provide for capital conservations buffers. the appropriate timing of transition to the new requirements, will be determined in 2011. while the basel committee has set a generous timeframe for implementation of the new requirements, we anticipate that given the current position of strength of our banking system and together with other jurisdictions, including those