a cushion against periodic shocks. • the sector ’ s average liquidity at end of april 2009 was 41. 6 % well above the statutory minimum of 20 %. • the number of people employed by the sector increased from 24, 911 at the end of april 2008 to 25, 498 at the end of april 2009. • the number of branches at the end of april 2009 stood at 904 an increase of over 100 branches from the corresponding period in 2008. your excellency, the strength of the kenyan banks is now being felt in the region. there is a growing trend by kenyan banks to expand their operations regionally particularly within the east african community. this is in response to the regional expansion by businesses resulting from the drive towards integration. the five east african central banks therefore signed a memorandum of understanding ( mou ) early this year. the mou will facilitate information sharing and supervisory cooperation amongst the central banks particularly for regional banking groups. this arrangement will serve to mitigate cross border risks that regional banking groups may pose to the financial sectors of the east african countries. on the domestic front, banks are also venturing into capital markets, insurance and the retirement benefits sectors. supervisory co - operation and co - ordination is therefore also paramount for effective regulation and supervision of domestic financial conglomerates. the central bank is working with the other domestic financial sector regulators i. e. capital markets authority, insurance regulatory authority and the retirement benefits authority to finalize an mou that will facilitate information sharing and supervisory co - operation particularly for the emerging financial conglomerates. this domestic supervisory co - operation and coordination will mitigate the systemic risk posed by players operating in the different sub - sectors of the financial system. your excellency a stable and efficient banking system provides a safe haven for the savings for kenyans. the banking sector is therefore well poised to tap into the vast reservoir of savings that remain outside the formal banking space. but this can only be done through cost effective and innovative products, as well as improving access to financial services. savings mobilization will undoubtedly support investments in the economy. such investments will increase employment and uplift living standards of kenyans. this will be important in achieving not just kenya ’ s vision 2030 aspirations but also the millennium development goals. the central bank will therefore continue to partner with banks and other market players to ensure that the sector plays its ’ rightful role in kenya ’ s development agenda. it is now my honour and singular pleasure to invite the honorable deputy prime minister and

in capital flows and governments ’ balances. in terms of the evolving global prudential framework, the emphasis has generally been more on capital, as a means of reducing vulnerability to risks, than on prudential requirements for liquidity risk. the issue of liquidity has not been generally addressed in as structured a manner as the issue of capital requirement. aspects relating to liquidity have been largely left to each regulator to assess and prescribe a suitable framework under pillar ii of basel ii. in the indian context, rbi had issued broad guidelines for asset liability management and banks have flexibility in devising their own risk management strategies as per board approved policy. however, in regard to liquidity risks at the very short - end, rbi has taken steps to mitigate risks at the systemic level and at the institution level as well. first, rbi had, early on, recognized the risks of allowing access to the unsecured overnight market funds to all entities and therefore restricted the overnight unsecured market for funds only to banks and primary dealers ( pd ). to enable this phase - out of all non - bank / non - pd participants from the uncollateralized money market, the repo markets – both bilateral repos and collateralized borrowing and lending obligations ( a form of tripartite repos ), were developed. since 2005, the overnight call market is a pure inter - bank market. the impact of this has been that the volumes have shifted from the overnight unsecured market to the collateralized market. second, greater inter - linkages and excessive reliance on call money borrowings by banks could cause systemic problems in two ways. one, if a bank is not able to repay the loan on the due date or the market perceives that the bank is having funding problems it may not be able to continue borrowing in the inter - bank market. if this results in non - payment, the bank which has lent the funds could itself face liquidity problems if it has also borrowed on an overnight basis to lend to this bank. the risk of financial contagion could also arise if other banks in the system that are similarly placed become affected by such concerns. the external costs of failure – the costs that are not borne by the bank and are, therefore, unlikely to be taken into account in its own planning – are therefore greater. the rbi has therefore introduced prudential measures to address the extent to which banks can borrow and lend in the call money market in relation to the