be used should output decline dramatically. the outlook for financial regulation a major consequence of the crisis already apparent is the growing consensus around the need for a fundamental review of the foundations of financial regulation. the crisis has also rekindled concerns about the structure of supervision. as you know, at the french president ’ s instigation, huge efforts are made to think about what is termed now a “ new bretton woods ”. beyond these ambitious words, i do believe it to be useful to take a fresh look at the existing financial regulation. this must be done without haste, but no stone should be left unturned. improved regulation appears to be necessary in several domains, from rating agencies to risk management, the organisation of financial markets and even the question of compensation. as a contribution to this debate, i would like to make two sets of remarks. one has to do with the fluctuations of financial systems. the other concerns financial supervision. financial systems that operate in the context of a developed market economy are, by nature, subject to cyclical forces. some are a consequence of the business cycle. credit activity is an obvious example, as credit demand is heavily influenced by economic activity. others are from within financial systems. for instance, financial institutions ’ equity position moves in line with asset prices specially in a fair value world where fluctuations result in capital gains or losses. this effect tends to be exacerbated when financial intermediaries actively manage their balance sheets to target a preferred degree of leverage. the challenge for the authorities is to assess whether and to what extent regulations reinforce these dynamics and impact the entire financial system. with these questions in mind, work is being undertaken to examine the impact of prudential standards. it is also on this basis that the accounting adjustments that i mentioned earlier have been made. we will have to set up supervisory systems that are more suited to economic developments. the need to develop a “ macro - prudential ” policy is now under debate. the general principle is straightforward : it consists in ensuring that supervision manages to limit risks for the stability not only of a particular institution, but also of the entire financial system. its implementation, however, is complex. for the moment, we are only at a preliminary stage, contemplating which tools a macro - prudential policy could be based on, and how these tools could be used. as regards supervision, this crisis has shown three things. first, it has highlighted the merits of having the banking supervisor close to the central

banking services reach especially to rural areas to help drive increased domestic savings. 5. in this regard, it is imperative for stakeholders to explore mechanisms to deliver financial services and push forward the financial inclusion frontiers in tandem with vision 2030. as a first step in pushing the initiative forward, the banking act was amended through the finance act 2009 permitting banks to use third parties ( agent banking ) to provide certain banking services on their behalf. i take this opportunity to urge banks to take advantage of the new provision. the agent banking model was designed to assist banks to lower their cost of offering banking services while at the same time improving their earnings as more kenyans are offered an opportunity to access financial services. 6. the kenyan banking sector continues to perform well despite the global financial turbulences and challenges on the domestic front. the sector ’ s total assets increased by 21 % from ksh. 1. 20 trillion in march 2009 to ksh. 1. 45 trillion in march 2010 whereas deposits increased by 23 % to ksh. 1. 14 trillion over the same period. profit before tax for the sector increased by 33 % from ksh. 12. 8 billion in the first quarter of 2009 to ksh. 17. 0 billion in the first quarter of 2010. this is remarkable, especially against the backdrop of domestic shocks and global financial crisis. 7. despite the impressive performance by banks, customers still have to contend with high borrowing costs. although many banks have responded to central bank ’ s plea of lowering interest rates, it is our expectation that all the banks should follow to support the economic growth via the support of expanded private sector credit at an affordable cost. on our part, we should now ask the real sector to access and negotiate credit in line with their potential investment. 8. finally, let me reiterate that central bank and indeed the government of kenya will continue to pursue policies that create a conducive environment for growth of the financial sector and encourage the provision of banking services to majority of the un - banked kenyan population at affordable cost. for us to be successful in this, we need to support strong institutional growth and remove underlying constraints that inhibit growth and financial reach. 9. with these few remarks ladies and gentlemen, it is now my honour and pleasure to declare the new brand of consolidated bank of kenya officially launched. thank you and god bless you all.