circumstances, such as the us housing policy to support home ownership for low - income households 2. regarding the macro conditions, global imbalances with large saving relative to investment in many emerging - market economies, and corresponding low saving relative to investments in industrialised countries – the so called global saving glut and investment shortage – lead to low real interest rates and high asset prices ( bernanke 2007 ). low world real interest rates in combination with the great moderation, the long period of very stable growth and stable low inflation, led to a systematic underestimation of risk, very low risk premia in financial markets, and a large expansion of credit. for a more detailed discussion of these issues, see svensson ( 2010, section 5. 2 ). see bean ( 2009 ) for more discussion. distorted incentives for commercial and investment banks to increase leverage to excessive levels, together with lax regulation and supervision and the lack of an appropriate bank resolution regime, lead to a very fragile financial sector. securitisation reduced the incentives to exercise due diligence in loan origination. it also led to regulatory arbitrage by setting up off - balance - sheet entities, which for various reasons nevertheless remained in effect on the balance sheet. traders and fund managers also had distorted incentives to take excessive risks because of short - sighted and asymmetric remuneration contracts. there were eventually enormous information problems in assessing the risks of extremely complex asset - backed securities, and the potential for correlated systemic risks was grossly underestimated. none of these causes had anything to do with monetary policy, except indirectly in that monetary policy may have contributed to the great moderation. regarding the role of the federal reserve ’ s expansionary monetary policy in the period preceding the crisis, opinion is divided as to whether or not it contributed to the build - up of the crisis. in my view, during the period in question there was a genuine and well - motivated fear of the united states falling into a japanese - style deflationary liquidity trap, and the optimal policy in such a situation is a very expansionary monetary policy 3. given the empirically limited effect of policy rates on house prices, a very tight us monetary policy would have been required to prevent the house price boom, with a deep recession and the risk of the us falling into deflation and a liquidity trap 4. and a tighter monetary policy would have had no impact on the global imbalances, regulatory problems, distorted incentives

zeti akhtar aziz : legal issues in the islamic financial services industry speech by dr zeti akhtar aziz, governor of the central bank of malaysia, at the 4th ifsb seminar on legal issues in the islamic financial services industry, kuala lumpur, 28 september 2009. * * * it is my great pleasure to speak at this 4th ifsb seminar on legal issues in the islamic financial services industry that has brought together so many international experts and industry practitioners to discuss legal issues in islamic finance. such dialogue is important to achieving a common understanding and solutions to issues in islamic finance, thus contributing to its overall development. islamic finance has continued to expand and demonstrate its resilience in the current more challenging international financial environment. this advancement has been in terms of the increased range of islamic financial products and services, the development of the islamic financial infrastructure and institutions, the greater maturity of the islamic financial markets and the more comprehensive supporting legal and regulatory framework. more recently, the international dimension of islamic finance has gained significance with the move to further liberalise domestic islamic financial system and the strengthening of the international islamic financial architecture. in malaysia, islamic banking assets at the end of the second quarter of this year, now constitutes close to 19 % of total banking assets. total financing now amounts to rm118 billion and accounts for 20. 1 % of the total financing portfolio of the banking industry. net nonperforming financing remains low at 2. 4 %. islamic securities has also maintained its dominance in the malaysian bond market, accounting for 58 % of total bond market. and almost two thirds of the equity market comprises shariah compliant securities. growth has also been experienced in the takaful sector in which the funds asset has registered an increase by 8. 2 %. this recent decade has also seen the increase in number of islamic financial institutions including full - fledged islamic banks, development financial institutions that engage in islamic banking, takaful, re - takaful and capital market intermediaries. several of these players have strategic partnerships with foreign players. in april this year, as part of the liberalization initiatives announced, new mega islamic banking licenses and up to two family takaful licenses will be issued this year. on the global front, islamic financial assets are projected to grow to usd1. 6 trillion by 2012 while the global sukuk outstanding valued to date at approximately usd152. 8 billion. in the third series of this seminar in 2007, the vital role of a strong