significant macroeconomic consequences and these should be factored in when designing and implementing them. while the crisis has clearly had global ramifications, its impact on financial systems was not uniform across the world. differences in financial structures do matter. banks remain central in our financial systems : this is especially true for continental europe where they are responsible for more than 80 % of financial intermediation. these differences suggest that we should be careful in crafting the regulatory answer to the crisis. our experience in france is that our banks ’ universal model has weathered the storm relatively well. it would be a major paradox to put in place rules which would challenge such universal models. there needs to be scope for different countries to tailor solutions to their circumstances, while at the same time doing so within a globally agreed framework. many banks have improved significantly their capital position through raising high quality capital. yet, banks may not feel comfortable if their new capital position is barely above the new minimum. indeed, a critical issue going forward relates to the behavior of banks with respect to capital buffers they retain on top of the existing minimum. if banks target buffers above the regulatory minimum, which is an endogenous market outcome, they may need to raise even larger amount of equity than what can be expected just looking at the current package. on the one hand we know from empirical studies that weaker capitalized banks typically exhibit weak loan growth compared to other better - capitalized banks. on the other, banks may find it less costly to adjust loan volumes and loan pricing than capital, as frictions in the market for bank capital make the latter option more expensive. finally, any regulatory framework needs to manage avoidance and regulatory arbitrage, and keep up with innovation and other forms of structural change. for this, a necessary, but not sufficient condition is that standards are comprehensive in coverage and consistent across jurisdictions. i am not sure, for instance, that the leverage ratio, if it was to be implemented as a compulsory instrument, would meet this double test. at the current level of accounting divergences, consistency will be very difficult to achieve. furthermore, there is a risk that it would encourage migration of credit activities towards other – less regulated – parts of the financial system. it is therefore important that consistency apply across standards and countries. convergence between accounting standards is a precondition for a consistent implementation of some of the prudential reforms discussed by the basel committee. it is also essential that new prudential standards for banks become

number of cfa charter holders and expects the numbers to grow as more and more sbp officers pursue cfa certification. ladies and gentlemen, let me now shed some light on why it is necessary for all of us to equip ourselves with advance knowledge and tools proactively. the global financial crises ( gfc ) has aptly demonstrated the havoc that can be caused when profit taking motive combines with lack of transparency and disclosure standards, inadequate awareness of sophisticated financial products, optimistic expectations about asset pricing and lax regulatory standards. the global financial crisis forced the regulatory attention towards containing systemic risk and ensuring financial stability through strong capital and liquidity standards ( such as basel iii ), more stringent regulations, and introduction of macro prudential policy toolkit. financial stability demands timely identification of systemic vulnerabilities along with mitigating measures to limit page 2 of 5 the spillovers and keep the public confidence intact. appreciably, cfa institute has updated its curriculum to address the key lessons learnt from the global crisis. ladies and gentlemen ; not surprisingly, ensuring financial stability has now become the number one priority of many of the central banks around the world. sbp is also playing a pivotal role in ensuring stability of the financial sector in pakistan. in line with its vision 2020 ’ s focus on strengthening the financial stability regime in pakistan, sbp has established a separate financial stability department ( fsd ). an executive level financial stability executive committee ( fsec ) has also been constituted within sbp which is entrusted with the responsibility of discussing and monitoring financial stability issues. further, sbp and secp have formed a council of regulators, which will act as a forum for deliberating issues related to systemic risk, particularly those having cross market stability implications. work is also underway to form a national level financial stability council ( nfsc ) involving other stake holders such as ministry of finance. it is no secret that developed financial institutions act as a catalyst for enhancing financial intermediation, reduce information asymmetries and allow central banks to implement and achieve policy objectives. monetary policy is, generally, implemented through money and foreign exchange markets where financial institutions, particularly the banks, play a pivotal role. if financial institutions are fairly mature, markets are efficient and there is low uncertainty, the effectiveness of monetary policy increases as the monetary signals are smoothly transmitted to the entire spectrum of the yield curve. sbp, through its various policies and initiatives, has been endeavoring to create an enabling environment for the