the board of directors and management. the policy on shareholding will therefore be enhanced to promote greater shareholder activism within banking institutions. shareholders need to be concerned with the practices of banking institutions, particularly those which can have adverse implications on depositors'interests and on financial stability. similarly, given the increasingly competitive environment, advancement in risk management practices and the strengthened corporate governance framework, a more flexible policy framework on lending to connected parties will be put in place. however, to prevent abuses of such flexibilities, there will be safeguards and conditions that need to be observed by banking institutions. ladies and gentlemen, the adoption of a principle - based regulatory approach will provide banking institutions with greater flexibility in deciding on strategic options in a more competitive environment. as the banking industry grows at an accelerating pace, there are common areas where collective efforts by the industry will not only bring benefits to the financial sector but also to the overall economy. in this regard, there is an increasing trend among developed countries such as the united kingdom, canada, and australia, where the bankers associations have an important role in spearheading initiatives to promote high standards of ethical code of market conduct to meet consumers'rising expectations and demands. the bankers associations have increasingly assumed the role as a focal point for consultation with not only the regulatory authorities, but also by the other stakeholders on policies affecting the financial sector. in this respect, such associations have played an important complementary role to the regulatory authorities'efforts in promoting a more progressive, dynamic and resilient banking system. in addition, banking associations in these countries have also acted as the voice for the industry in articulating the position of their members to promote the interests of the industry. in malaysia, there are several areas of common interest to the industry which the associations can spearhead. it is, therefore, to the benefit of the industry to reassess the role of the associations with respect to taking forward common initiatives and interests of the industry. ladies and gentlemen, moving forward, consumer and sme financing will continue to be two important areas of growth. the overall macroeconomic and interest rate environment would continue to be supportive of growth in these two sectors. the challenge for banking institutions is to ensure that consumers and the businesses have access to a wide range of products, while at the same time ensuring that the necessary infrastructure is in place to manage risks arising from these businesses. this is to ensure that lending to these sectors would be sustainable and avoid the risks that have recently been experienced in

, more representative of risk profiles, and more sensitive to changes in those risk profiles than they are today. if analysis shows that any part of this goal is not being met, we will consider ways to improve the framework. conclusion the three pillars of basel ii provide a broad and coherent framework for linking regulatory capital to risk, for improving internal risk measurement and management, and for enhancing supervisory and market discipline at large, complex, and internationally active banks. indeed, we have already seen significant progress in risk measurement and management at many banks in the united states and elsewhere as a result of the basel ii development process. it is also important to modernize the basel i framework to improve the risk sensitivity of capital requirements at smaller and less complex banks, without artificially creating competitive inequalities. the federal reserve continues to support efforts to implement the basel ii framework in the united states, and we expect more progress on implementation soon. it is critical to move forward expeditiously with basel ii implementation so that our largest and internationally active banking organizations maintain their safety and soundness and remain competitive, our supervisors bolster their assessment capabilities, and the market gains greater access to information about risk. " risk - based capital : bank regulators need to improve transparency and overcome impediments to finalizing the proposed basel ii framework ( 1. 6 mb pdf ), " government accountability office, february 2007.