. even in the gcc the crisis has begun to have an impact. although the gcc countries enjoy strong fundamentals, this has not shielded them from the crisis. several have experienced significant stock market corrections. some gcc members have needed to provide support to their banking sectors, either in the form of recapitalization funds, or by providing blanket guarantees of deposits, or by a combination of both. there is plenty of anecdotal evidence that investment projects are being delayed or scaled back. in the immediate term the cbb ’ s objective has been to ensure that bahrain ’ s banking system remains on a sound footing. we receive daily reports from the banks of their liquidity positions, and weekly reports of their exposures. we have also encouraged them to bring forward the disclosures of their third quarter results, many of which have now been published. in the longer term the global financial crisis contains many lessons for both regulators and the financial industry. in particular, it helps to underscore the need for sound risk management, effective internal controls and strong corporate governance at financial institutions. all of these elements are essential to ensure the stability of individual financial institutions and of financial systems. the role of the regulator in addressing these challenges is crucial. we can provide the guidance and create the appropriate regulatory framework to enable the sound and stable conduct of financial services and financial institutions. the 6 - volume cbb rulebook is at the very core of our regulatory development and enhancement programme. the importance of sound corporate governance is one issue brought to prominence by the recent global financial turmoil. as alan greenspan acknowledged last month in testimony to the united states congress, an important cause of the crisis was the failure of internal monitoring and control in financial firms. he had assumed, he said, that shareholders in financial firms had adequate incentives to ensure that the firms they owned did not take excessive risks. as shareholders have subsequently found out, risk taking that goes wrong can be very costly to them. however, greenspan acknowledged, his assumption turned out to be flawed. shareholders did not act to prevent excessive risk - taking. the conclusion is clear. if firms lack the incentives for adequate self - regulation then the regulator must step in. this is the aim of our rulebook requirements on corporate governance and internal controls. the financial crisis also points to the need for high standards of risk management in financial firms. improving the risk management practices of banks was an important component of the work already being undertaken by the central bank before the financial

u. s. dollar. with regard to corporate finance, private banks continue to be more active in extending loans, mainly to blue - chip companies, while carefully evaluating the credit risks involved. however, the lending attitudes of financial institutions perceived by small firms are becoming slightly more cautious. meanwhile, the fund - raising conditions of firms in the markets for such instruments as corporate bonds and cp continue to be favorable owing to a decline in market interest rates and the more active stance of investors to take credit risks. on the other hand, credit demand in the private sector is declining faster mainly due to a decrease in business fixed investment while firms continue to reduce their debts. in view of this, the year - on - year rate of decline in private banks ’ lending is expanding slightly. the growth rate of amount outstanding of corporate bonds issued is about 2 percent on a year - on - year basis. meanwhile, the amount outstanding of cp issued continues to be at a high level, significantly exceeding that of the previous year due to the favorable environment for issuing cp. the growth rate of money stock ( m2 + cds ) in august was slightly higher than that of the previous month due mainly to the inflow from postal savings. funding costs for firms continue to be at extremely low levels. with respect to the recent financial environment, the effects of monetary easing are permeating through the economy. this can be observed such as in the additional easing in the money market conditions, further decline in short - term interest rates, higher growth in monetary indicators, and the improvement in the fund - raising conditions of firms through the markets. however, against the background of deteriorating corporate earnings and the more cautious lending attitudes of financial institutions, fund - raising conditions of small firms seem to be becoming more severe. hence, the developments in the behavior of financial institutions and corporate financing need careful monitoring. in addition, it is necessary to carefully monitor the effects of the terrorist attacks in the u. s. on global financial markets and economic activity.