derived more than half of their overall income from activities outside iceland and the biggest bank derived about two thirds of its income from operations outside iceland. they are therefore much less sensitive to cyclical developments in iceland than before, or in any one country for that matter. the risks are much better spread than before. central bank of iceland : monetary bulletin 2008 / 1. in their expansion, the banks exploited the particularly favourable opportunities offered in the global financial markets in the form of abundant liquidity at historically very low prices. thus, they relied on capital markets funding for their operations, raising the share of borrowed funds on the liability side of the balance sheet. the rapid expansion of the banks did not go unnoticed. it drew the attention of many observers at the end of 2005 and the early part of 2006, resulting in considerable headwind for the banks in that period. questions were raised about their business model, their reliance on wholesale funding in international markets and low level of deposits, lack of transparency and cross ownership among other things. the banks responded effectively to the criticism levelled at them. they increased transparency, reduced cross ownership, and placed emphasis on raising the share of deposit on their funding side. they also significantly strengthened their capital base and last but not least greatly improved their liquidity position. as a result they were much better prepared for the sudden change in global financial conditions after the middle of last year. most importantly, they had a strong liquidity cushion. the icelandic banks have been the focus of considerable international attention in recent months. questions have been raised about their viability and those have been reflected in their extraordinarily high cds spreads since late last year. these spreads began to rise following the turnaround in the international markets and they had a tendency to rise more on the icelandic banks than on other banks with every event or news that prompted a general rise in risk aversion and in cds spreads. the spreads peaked around the end of march and have come down quite considerably this month. the cds market is an opaque and unregulated one but, nevertheless, cds spreads are a reference for the terms that would be available to the banks if they were to go to the market. in our view, the cds levels on the icelandic banks have been out of proportion to their underlying financial strength, their credit rating and spreads on comparable banks in other countries. it also seems that the cds market is thin, turnover in cds transactions on icelandic banks appears to be limited. one reason behind relatively high cds

ranee jayamaha : governance, risk management and compliance keynote address by dr ranee jayamaha, deputy governor of the central bank of sri lanka, at the seminar on “ governance, risk management and compliance and the roadmap for financial services industry ”, colombo, 7 february 2008. * * * the chairman and the organizing committee ; i would like to begin by expressing my gratitude for being given the opportunity to address a gathering that includes impressive groups of representatives from the financial services industry, risk management professionals, regulators and businesses. as you are aware, the year 2008 has started off with the continuation of some of the challenges that resulted in significant disturbances in world financial markets : the impact of the sub prime market turmoil which originated in the us is still spreading across europe and other financial markets ; the northern rock crisis in the u. k. has raised serious regulatory issues ; and the large frauds in global banks have highlighted the repercussions of the lack of internal controls and accountability in financial institutions. as in the past, many of these have been due to lapses in governance and risk management practices. although sri lanka ’ s financial markets have been insulated from these disturbances, they underscore the need for good corporate governance, better risk management and compliance in our financial industry. it is also important for us to learn from the bitter lessons experienced by others as our financial services industry too is tempted to provide low quality credit, which has been the root cause of the subprime issue. the topic therefore is very relevant and it is time to generate a wider discussion on governance, risk management and compliance – in short – grc, which are considered to be the three key pillars or imperatives of financial management. 1. what is grc? 1. 1 by itself, grc is not new or unknown. grc has always been of fundamental concern to businesses, the financial service industry and to regulators and supervisors. all stakeholders realize that there are enormous benefits of observing grc and that such benefits would outweigh the cost of putting in place processes, procedures and controls that enable effective implementation of grc. 1. 2 governance is all about self - discipline. it is the process by which the board of directors sets the objectives for an organization and oversees progress towards achieving those objectives. put it simply, it is the set of procedures and processes that keeps the organization alive and allows it to operate as a “ going concern ”. the higher the sophistication of