- compliant high quality liquid instruments that could be used to meet a stock of liquid assets test. as you know, the cbb has undertaken a number of initiatives in recent years to assist the islamic financial sector to overcome this difficulty. nonetheless, although recognizing that the problem is a difficult one, the management of islamic financial institutions have a responsibility to ensure that they take appropriate steps to limit the risk of illiquidity to their institutions. prudent banking requires management to consider risk adjusted profitability. for example, putting a large proportion of the bank ’ s assets into potentially profitable, but also highly illiquid, real estate development projects may fail to achieve an appropriate risk reward tradeoff. if a bank has put all of its assets into long - term illiquid assets, it may show high levels of profitability for a few quarters, but it is unlikely to remain in business for very long. finally, let me turn to the role of the boards of directors and of senior management. the financial crisis involved failures of corporate governance at many different levels. there is a common pattern behind many of the failed financial institutions of the last 18 months. in many cases, the chief executive was a dominant figure who made sure that he alone took all important decisions. there was no culture of open debate and discussion within the institutions, with the result that members of the board of directors did not feel able to challenge the chief executive ’ s decisions. many bank boards lacked banking experts. individuals were recruited to the board of banks for their connections rather than for their knowledge of the banking industry and the ability to ask the right kind of questions. boards of directors also failed in their fiduciary duty to consider the interests not just of shareholders, but also of creditors and depositors. banks are not like other corporations where directors need to consider only the interests of shareholders. banks have a special position of trust in that they are charged with looking after other people ’ s money. this means the interests of creditors and depositors need to have equal weight with those of shareholders in the decisions taken by the board of directors. recognition of the directors ’ fiduciary responsibilities is, therefore, an essential element of corporate governance for banks. this observation applies with special force to the islamic financial industry. the fiduciary duty of the board of directors of an islamic financial institution does not only relate to the interests of shareholders, depositors, and other creditors, but also to investment account holders who bear many of

rasheed mohammed al maraj : managing the challenges of industry globalization keynote address by his excellency rasheed mohammed al maraj, governor of the central bank of bahrain, at the 18th world islamic banking conference, manama, 22 november 2011. * * * your excellencies, ladies and gentlemen : “ salaam alaikum ” it is a pleasure to welcome you once more to the world islamic banking conference. over the years the conference has become firmly established as a landmark event not only in the calendar of bahrain, but also in that of the global islamic financial services industry. i would like to congratulate the organisers for once again having assembled such a strong list of speakers at this year ’ s event. a special word of thanks is due to the many distinguished speakers who will be appearing during the conference. their contributions are vital to its success. no less important are the contributions made by the sponsors, who have again been generous in their support. collectively, your contributions are the reasons for the great success of the wibc. the topic of this year ’ s inaugural session is that of managing the challenges of industry globalization : strengthening regulatory frameworks to accelerate the international development of islamic finance. this is an immensely important topic. as i have pointed out in several speeches since the global financial crisis began over three years ago, it is essential for the future development of the islamic financial industry that it learns from the mistakes of interest based finance. this includes making sure that it is based on secure regulatory foundations. in the past 30 years we have seen the growth of a truly global financial system. financial markets and institutions no longer stop at national borders. for example, the amount lent by banks cross - border in 1983 was $ 703 billion. by 2008, the year that the financial crisis became global, that figure had risen to $ 20 trillion. the trends in the banking market were followed by trends in other sectors of the financial industry. a globalised financial system delivered many benefits. capital was free to flow where it could obtain the best investment returns. in many parts of the world, foreign capital was responsible for creating new businesses and factories that raised rates of economic growth and provided employment to millions of people. as a result, the process of capital allocation that the global financial system made possible was responsible for lifting countless millions of people out of poverty. it is important for critics of the global financial system to remember this achievement. it is far from insignificant. at the same time, however