of risks throughout the financial system, is essential because it addresses the problem of gaps in the regulatory regime and the regulatory arbitrage that such gaps can encourage. in addition, macroprudential supervision is needed because the financial system is interconnected. as amply demonstrated during the crisis, siloed regulatory oversight is problematic. supervisory practices must be revamped so that supervision is also horizontal – looking broadly across banks, nonbanks, capital markets, payment and settlement systems and geographies. in the united states, the federal reserve is well suited to play a major role in such oversight because it alone has the expertise in three major aspects of the financial system – banking, capital markets, and payments and settlement systems. it also currently has oversight responsibility for most of the firms that one would view as systemically important. in evaluating what the federal reserve should do, it is important to recognize that the federal reserve ’ s three primary roles – monetary policy, the lender of last resort function, and supervision – are closely interlinked. each one of these activities helps the federal reserve perform the others. for example, the information we collect as part of the supervisory process gives us a frontline, real - time view of the state of the financial industry and broader economy. monetary policy is more informed as a result. only with this knowledge can a central bank understand how the monetary policy impulse will be propagated through the financial system and affect the real economy. similarly, involvement in the supervisory process gives us critical information in fulfilling our lender - of - last - resort responsibilities. information sharing with other agencies is simply not as good as the intimate knowledge and understanding of markets and institutions that is gathered on a first - hand basis. indeed, many institutions at the center of the crisis and arguably the most troubled – bear stearns, lehman brothers, merrill lynch, aig and the government - sponsored enterprises – were not supervised by the federal reserve. consequently, when those institutions came under stress, the federal reserve had poorer quality and far less timely information about the condition of these institutions than would have been the case if we had had the benefit of direct supervisory oversight. let me now shift gears and turn to the two macroeconomic policy issues : fiscal sustainability and balanced global economic activity. the deep downturn in economic activity has led to a sharp deterioration in the fiscal condition of many countries – the united states is no exception. the problem is not so much that the economic downturn has caused large

this has been reinforced by the dynamic pace of innovation in islamic finance that has widened the range of financial products and services. islamic finance has thus become an increasingly important channel for the efficient allocation of funds across borders and the diversification of risks. islamic finance : financial solutions for international business despite an increasingly more challenging environment, islamic finance has continued to expand its potential as a sustainable and stable form of financial intermediation. its emphasis on the close link between financial transactions and economic activity has positioned islamic finance to be well - anchored to serve the real economy. the adoption of profit - and risksharing, transparency and disclosure, and the universal ethical values of fairness which is implicitly embedded in the islamic financial system provides the internal checks and bis central bankers ’ speeches balances. embraced in its entirety, it enhances the prospects for sustainable economic growth and financial stability. the resilience of the islamic financial system is also further strengthened by the international prudential standards and best practices that have now been introduced. these include the standards issued by the islamic financial services board since 2002 in the areas of capital adequacy, risk management, governance, and the conduct of business and supervisory process. the industry is also guided by international accounting standards that have been developed by the accounting and auditing organisation for islamic financial institutions since its establishment in 1990. in enhancing liquidity management in the islamic financial system, the international islamic liquidity management corporation ( iilm ), which was established in 2010, is putting in place the mechanism that will facilitate effective liquidity management solutions through the periodic issuance of short - term shariah - compliant financial instruments. as the islamic financial system transitions to becoming more diversified and comprehensive, it provides the spectrum of financial solutions that meet the different needs of the economy. such financing products offered in islamic finance also include syndicated financing, equity financing and venture capital. there are also a wide range of investment and treasury instruments, as well as fund and wealth management products for the management of portfolios of businesses. in terms of takaful, there is also a broad range of products, including takaful coverage for physical properties and assets of businesses, as well as protection for employees. the growing significance of the international dimension of islamic finance in this recent decade has witnessed its increasing role in bridging economies through the mobilisation and channelling of funds to productive investment activities across borders. despite the challenging global environment and the increased uncertainties, the islamic finance industry has continued to experience