that controlling banks ’ risk - taking would be in the long - run interests of the kingdom. the fear and anxiety of the last weeks of september and early october began to subside as people came to recognise that the banking system was continuing to function normally. people who had taken money out the banks began to return, and for the last several months banks ’ deposits have been very stable. we have also seen banks continuing to report solid profitability, despite the impact of the crisis in the final quarter of 2008. the second impact of the lehman collapse was on the liquidity of global markets. there was a massive rise in risk aversion, reflected in a variety of indicators, including a rise in risk premiums, the rising cost of credit default swaps, and steep falls in global stock markets. activity in interbank markets virtually ceased. the shortage of global liquidity had an impact even here in the gulf. as recently as july 2008 the liquidity position of the gcc had never been stronger. in part, this was due to the high price of oil, but it also reflected large speculative inflows of capital betting on a possible of revaluation of gcc currencies. as the financial crisis worsened in september, we began to see rapid acceleration in the outflow of capital. speculative positions were quickly reversed as the banks which had placed those bets now discovered that they needed the liquidity closer to home. the result was a liquidity squeeze on banks throughout the gcc, from which those in bahrain were not immune. recognising the liquidity pressures on bahrain ’ s banking system, the central bank took action to alleviate the problem. we extended the range of collateral that we would accept in our lending operations with the banking system, so that this now includes long - and shortterm ijara sukuk issued by the kingdom of bahrain. we are also looking at extending the scope of acceptable collateral still further. our main policy initiative, however, was to establish a foreign exchange swap facility. this allows banks that have us dollars to bring them to the central bank to swap for bahraini dinar at no cost. as the federal reserve and other leading central banks had taken measures to provide us dollars to financial markets in almost unlimited quantities, banks in bahrain could obtain dollars and swap them for dinar whenever needed. the result has been to offset to a large degree the liquidity impact of capital outflows. we have done so in a way that

rasheed mohammed al maraj : bahrain country showcase speech by his excellency rasheed mohammed al maraj, governor of the central bank of bahrain, at the bahrain country showcase, dubai, 14 may 2007. * * * your excellencies, ladies and gentlemen : good morning. assalam alaikum wa - rahmatullahi wa barakatuh it gives me great pleasure to welcome you all here today, and to open this bahrain country showcase event. bahrain, of course, has a long history as a financial centre, including a global profile as a centre for islamic finance. but bahrain has much more to offer than simply its experience and credibility – however important these factors are, of course. many developments have also quietly been taking place in recent years, and i am pleased that we have an opportunity such as this one to publicize just some of the features that continue to make bahrain a thriving financial centre. for whilst regional competition has undoubtedly grown significantly – and by the way this is something that i welcome, as benefiting the region as a whole – it is also true to say that bahrain has continued to thrive as an international financial centre. this is something that perhaps doesn ’ t attract the publicity that it ought to, but is perhaps understandable – news organizations look for what ’ s new, more than for what ’ s stayed the same. before i hand over to my colleague from bahrain financial services development, part of bahrain ’ s economic development board, to highlight the key features of bahrain ’ s financial services sector, let me just say a few words about current regulatory developments. bahrain has progressed quite dramatically in recent years, in terms of regulation. the bahrain monetary agency – long - established as the country ’ s central bank and highly respected banking regulator – became a single regulator in 2002, when it was also given responsibility for supervising the insurance sector and capital markets. last year saw the culmination of this process, with the introduction of new legislation and the creation of the central bank of bahrain as the successor organization to the bma. parallel to this process of institutional reform has been an unprecedented period of development and consolidation in terms of our regulations. starting in 2004, we introduced a system of comprehensive rulebooks, containing all our regulations in easily accessible format, to improve communication and transparency. and we introduced new regulatory frameworks for insurance and investment business firms, in 2005 and 2006 respectively. now, we are working on updating our capital markets rules. the first element