##ous outcome – a man - made construct – and the job of macro - prudential policy is to try to smoothen this cycle as much as possible. beyond increasing the resilience of the system, i will argue that macro - prudential policy should be ambitious in leaning against imbalances and if so, it has to be prepared to be bold and intrusive. decisions on the timing, design and calibration of interventions need to be underpinned by robust analysis. while monetary policy should not be employed to smoothen the credit cycle, under the principle of “ one objective, one tool ”, the macro - prudential policy function should rest under the responsibility of central banks given synergies and the interactions between the two policy functions. this reflects the macro - prudential policy framework adopted for the ecb / ssm. the nature of systemic risk and the objectives of macro - prudential policy macro - prudential policies aim to maintain the stability of the financial system as a whole through containing systemic risks. systemic risks can be defined as risks that, if materialised, have the potential to make financial instability become so widespread that the functioning of the financial system is impaired to an extent that growth and welfare suffer materially ( ecb 2009 ). ecb staff, combining available literature and practical experiences, has developed a conceptual framework that relies on three mechanisms that can lead to systemic financial instability : risk coming from large aggregate shocks, contagion risk, and bis central bankers ’ speeches the risk from the unravelling of widespread financial imbalances that have built up endogenously over time. 1 contagion occurs when the failure of one institution “ infects ” other hitherto “ healthy ” institutions. prominent recent examples of the materialisation of contagion risk include the drying up of interbank funding following the collapse of lehman brothers. large aggregate shocks have always been an important source of widespread financial instability through history. gorton ( 1988 ) documented how negative economic news were the best leading indicators of the likelihood of banking panics in 19th century usa. the third, and, in my view, most important source of systemic risk is the risk of the unravelling of financial imbalances. these imbalances may build up gradually, mostly endogenously, and can then unravel abruptly. they form part of the inherent pro - cyclicality of the financial system. 2 it is crucial to recognise that the financial

has an important role in building cross - border consensus and collaboration on the strategic direction for the islamic financial services industry for better alignment to the objectives of financial stability. as islamic finance continues to become an integral part of the global financial system, there is scope for the current framework of cooperation to be strengthened and broadened to address the new challenges that have emerged. islamic finance has been inclusive in its development, not only at the national level but also across jurisdictions. at the national level the islamic financial system provides the full spectrum of financial services from the large multinational corporations to micro - enterprises and to households. at the international level, the development and expansion of islamic finance become important in strengthening financial and thus economic linkages between emerging economies. it has allowed emerging economies to participate in its development thus increasing the potential to contribute to the rebalancing of global growth as financial flows not only provides support to domestic demand but also to greater trade and investment flows across borders. concluding remarks in this challenging international financial environment, islamic finance has continued to demonstrate its evolution and strong growth. islamic finance in its advancing journey today is presented with an opportunity to increase the financial linkages with the broader financial system thereby facilitate a more efficient allocation of capital across borders. indeed, islamic finance as an integral part of the international financial system has the potential to contribute to global financial stability and to enhance the prospects for global growth.