requirements for banks are very substantial. i am rather sceptical about the claims that substantially higher capital requirements must mean significantly higher costs of funds for those who borrow to invest and that total investment and output in the economy will be significantly lower. there are two reasons for my scepticism. first, a simple historical point. in the uk and in the usa economic performance was not obviously far worse when banks held very much higher levels of capital. investment – relative to gdp – was not lower. this is prime facie evidence that much higher levels of bank capital do not cripple development, and the financing of investment. conversely, there is little evidence that investment or the average ( or potential ) growth rate of the uk economy picked up as spreads on bank lending narrowed over the past decade, and the volume of bank credit expanded sharply ( chart 5 ). chart 5 uk gdp growth gdp growth 10 year rolling average % - 2 - 4 - 6 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 source : bank of england, monetary and financial statistics. second, the most straightforward and logically consistent model of the overall impact of higher equity capital ( and less debt ) on the total cost of finance of a company implies that the effect is zero. the modigliani miller ( mm ) theorem implies that as more equity capital is see box 7 in chapter 5 of bank of england, financial stability report, june 2010. the 4 % cost is for a 1 % rise in banks ’ capital as a proportion of risk - weighted assets. raised the volatility of the return on that equity falls, and the safety of the debt rises, so that the required rate of return on both sources of funds falls. it does so in such a way that the weighted average cost of finance is unchanged 5. it is absolutely not self - evident that requiring banks to hold more capital has to substantially increase their costs and must mean that they need to charge substantially more on loans to service the providers of their funds. there are certainly reasons why the modigliani miller result is unlikely to hold exactly. the modigliani - miller theorem may not hold for banks because of asymmetric information problems in financial markets. but i will argue that one of the most obvious reasons why it does not hold ( differential tax treatment of debt and equity ) need not imply that there is a wider economic cost to be paid for higher capital requirements on banks. indeed, recent research suggests that the modig

building such an ethos, we should always have in mind the basic or fundamental islamic ethics that are also shared across many religions and societies. such prescriptions lay out the fundamental basis of decency and behaviour. we cannot steal, cheat, lie, and act dishonourably. principles that essentially guide us to be decent and in fact socially acceptable and responsible members of society. a natural component of this is ‘ amanah ’ or trust. as professionals, we should act as it is entrusted upon us, protecting the interests that we serve ; our customers, shareholders, institutions, and sometimes this comes at personal expense. trust is often called a valuable commodity. indeed, it is even larger than that. trust is a foundation or pillar of many relationships, including that of business and finance. with trust, we can have complex and farflung relationships and conduct such transactions in full confidence that these would be honoured and all liabilities or debts will be met. without such trust, we need legal contracts and enforcement. we need money that provides finality to a transaction so parties can walk away afterwards. unsurprisingly, money and even barter are mechanisms that allow us to do away with the need to trust. though this can be expedient, it is not without a loss. what could have been an ongoing mutually beneficial business relationship is instead a series of individual and potentially costly transactions. which is better? in a world without trust, we need the mechanisms to cope. in islamic finance, with ethics as its core, such trust can be nurtured and sustained. we can thus rely less on the coping mechanisms which would merely serve as safeguards while focusing more on the business and activities that generate productive and impactful outcomes. acting ethically should also involve embracing professionalism. having qualified islamic finance professionals will be a key differentiator. professional credentials can be instrumental in strengthening the trust between financiers and customers. these qualities will anchor businesses and financial institutions towards sound and fair practices even in an environment that is rapidly changing and uncertain. in addition, continuing professional development, or cpd, will be crucial to ensure talents keep their knowledge and skills fresh, enabling them to respond to changing circumstances with agility and precision. i believe this will culminate in islamic finance leadership that is premised on ethics and professionalism. islamic finance can then truly fulfil its key role in elevating the well - being of humankind, and not just for achieving