have negative implications on the industry image and the bank, including creating opportunities for “ rent seeking ” and corrupt practices. this has tended to create a screen between the licensing authority and potential investors in this market. c ) licensing procedures : on licensing of new bureaus, you note that the bank has introduced new licensing procedures that involve a two stage process, which include : i ) ii ) in the first stage, applicants are expected to submit application documents including : • certified copy of certificate of incorporation and memorandum and articles of association ; • a feasibility study of the proposed forex bureau ; • particulars and “ fit and proper forms ” of proposed shareholders and directors ; • declaration and confirmation that no shareholder and / or director has a similar position or role in any other forex bureau in kenya ; and • provide evidence of non - interest bearing deposit of us $ 30, 000 and core capital of us $ 30, 000. in the second stage, the central bank will issue a letter of intent to prospective bureaus to enable them commit funds by paying the requisite fees and deposits, and prepare premises for inspection before issuance of licence and approval to commence operations. the central bank has cleaned up the process and i do promise you an efficient licensing procedure. d ) compliance : let me take this opportunity to once again urge the industry to ensure that they have sound and effective internal control and management information systems to enable prompt and accurate submission of returns. 6. in conclusion, ladies and gentlemen, let me take this opportunity to invite the industry association chairman / representative to make some remarks. thereafter, we shall have a short discussion on industry concerns. i also urge you to continue to work together with my staff in development of the industry and in seeking solutions to the various challenges that will arise from time to time. thank you.

income in net operating income rose significantly in 2006. for some lcbgs with sizeable capital market operations, the share of trading income accounted for nearly half of net operating income in 2006 and corresponded to more than 45 % of their tier 1 capital, as shown in the chart on the right of slide 10. special feature article a looks at the relationship between bank income diversity and systemic risk. it finds that a measure of systemic risk is positively correlated with bank size and the share of trading income, while it is negatively correlated with revenues from ( traditional ) interest income sources. euro area insurance sector in the euro area insurance sector, there was a broad - based improvement in profitability in 2006 ( see the chart on the left of slide 11 ). the positive assessment is further supported by the fact that the profitability of the weaker performers in 2005 also improved in 2006. underlying this improvement was a strengthening of investment income, mainly owing to buoyant stock markets and higher interest rates. moreover, favourable developments in the financial conditions of primary insurers and reinsurers in 2006, together with a greater focus on risk management and risk - adjusted prices, support a positive outlook for the euro area insurance sector as a whole. these positive developments continued to be priced into expected default frequencies ( as shown in the chart on the right of slide 11 ). however, risks and challenges for the sector remain, as greater financial market risks could pose a challenge to the life insurance and non - life insurance sectors. 5. triggering factors for the materialisation of risks and the exposure of vulnerabilities i will now consider some possible factors that could trigger the materialisation of certain risks and the exposure of identified vulnerabilities. an important issue highlighted in the fsr relates to the existing ample financial market liquidity and the prevailing very low risk premia. one possibility is that an abrupt and sharp increase in risk aversion and a loss of confidence could lead to a substantial reduction in financial market liquidity which, as stressed, is currently abundant. such a decline could expose several underlying vulnerabilities and trigger an adverse scenario which could involve : • funding liquidity challenges for highly leveraged financial institutions ; • unwinding of carry trades and possible unwinding of global imbalances ; • increasing credit spreads across the credit quality spectrum ; • increased asset price volatility in financial markets more generally ; and • reduced bank profitability as a result of lower trading revenues. a second adverse scenario could