to hold a stock of high quality liquid assets that can be used to meet unexpected deposit outflows. these instruments include highly rated paper issued by sovereigns and by corporates. the regulators of the conventional industry have focused on the issue of liquidity because, pre - crisis, conventional banks increasingly relied on their access to short - term interbank markets to fund relatively long - term assets. borrowing short to lend long is, of course, fundamental to the business of banking. even so, there comes a point of which the degree of maturity mismatching is no longer prudent, and we saw with conventional financial institutions that the boundary between prudent and imprudent business conduct had been crossed. bis central bankers ’ speeches if we look at the trends in islamic banking in the years prior to the crisis, we can see that there are important similarities between the practices of islamic financial institutions and those of conventional ones. just like conventional institutions, islamic financial institutions increasingly funded long - term assets with short - term funding. although the assets and liabilities were structured in a sharia - compliant manner, the degree of maturity mismatching was just as great as was practiced by conventional institutions. in some cases where the asset involved a long - term development project, the degree of maturity mismatching was significantly greater than that practiced by conventional financial institutions. the conventional financial industry received a wake - up call during the crisis concerning the importance of understanding, monitoring and controlling liquidity risks. the islamic financial industry must recognise that it also needs good liquidity risk management. however, islamic financial institutions find it difficult to manage their liquidity risk given the relative lack of short - term money market instruments in which they can invest. the cbb has been at the forefront of innovation in assisting islamic financial institutions to manage their liquidity, but more still needs to be done both by regulators and the industry. so, does basel iii offer a solution? obviously, islamic financial institutions cannot invest in interest - based products. this makes the specific liquidity requirements of basel iii difficult to apply to them. there is also the complication that the outstanding stock of sukuk is not sufficiently large to enable all islamic financial institutions to meet a liquidity ratio comparable to that mandated under basel iii. finally, the markets for sukuk are not always as liquid as those for conventional government bonds and therefore even if an islamic financial institution invests in them it might not always be able to find a ready buyer when the need

that should have ensured there were proper risk management and control systems within each bank. it was the board of directors that should have ensured that the senior management of the bank had properly taken into account the possibility of experiencing extreme stress scenarios. finally, it was the board of directors that should have ensured the remuneration structures were in line with the long - run interest of the bank itself rather than rewarding short - term risk - taking. the need for high standards of corporate governance is, therefore, one of the main lessons to be drawn from the global financial crisis. it is in this context that the cbb views the new code as a significant development in strengthening bahrain ’ s reputation as a well regulated financial centre. the new code builds on current international best practice for corporate governance. for example, it reflects the corporate governance principles developed by the organisation for economic cooperation and development which have become the benchmark for international standards in the field. of course, the special responsibilities of the board of directors of a financial institution which i mentioned earlier means that the cbb will need to continue to apply its own corporate governance requirements on such matters as internal high level controls, the avoidance of conflicts of interest, and various public disclosure and reporting requirements. these will need to remain more detailed than those in the new code, for example setting the public disclosure requirements for financial institutions. the cbb ’ s detailed requirements on corporate governance will therefore continue to exist in parallel to the new code. it is important that public companies in bahrain, both financial and non - financial, enter fully into the spirit of the new code. it should not be seen as a matter of complying with just another set of regulations, but as something that should influence the corporate culture of companies in bahrain. greater transparency and more effective governance structures will in the long - run only serve to increase the attractiveness of bahrain for foreign investors seeking to establish or expand operations in the mena region. in conclusion i would like to take this opportunity to thanks dr. hassan fakhro, minister of industry and commerce, for his support and cooperation in the introduction of the new corporate governance code, and to the steering committee for the excellent work it has achieved. thank you for your attention.