crisis in part because the shari ’ a prohibits the excess leverage and speculative financial activities that were at its root. they also take comfort from the fact that many participants in conventional finance, as well as regulators, and policymakers have begun to ask whether there are lessons to be learned from the principles of islamic finance which might help avoid future crises. recent events have certainly created a great opportunity for the islamic financial industry. at the same time, however, there is no room for complacency and if the industry is to make the most of the opportunity that has now arisen it will need to ensure that the lessons of the crisis are fully learned. some of these lessons are quite general and apply equally to conventional and to islamic finance. central bankers and regulators have learned that they must pay more attention to risks that are common throughout an entire sector of the industry. these risks might not be immediately apparent from reviewing the balance sheet or financial statements of an individual institution. an example of such a risk is when all banks assume that they can exit their speculative positions at the same time. this requires them to assume that financial markets will always remain as liquid as they are in normal times. but if every financial institution is operating on the same assumption, then the point at which everyone tries to rush to the exit will be the point at which financial markets cease to function. there will be only sellers and no buyers. this is what happened in conventional finance when banks invested in structured financial instruments like cdos and clos which they then found they couldn ’ t sell at any price. now some people might believe that because islamic financial institutions cannot invest in cdos and clos, they must be immune to this problem. but think about the exposure of many islamic banks to the real estate market. it might be a reasonable assumption for an individual institution that it could exit profitably a property development that it is funding. but when many other institutions are making similar assumptions about the projects they are funding, the industry as a whole may find it difficult to exit its investments without substantial losses or within a reasonable time - frame. a further lesson of the crisis is specific to the work of the accounting standard setters and thus to aaoifi. this lesson relates to the importance of disclosure and transparency. good disclosures ensure that risks can be clearly identified and that market counterparties are able to form a considered view of the value of financial instruments and investments. the financial crisis involved multiple failures of disclosure and transparency. for example,

rasheed mohammed al maraj : ensuring stability – international perspectives on creating an effective regulatory framework inaugural plenary address by his excellency rasheed mohammed al maraj, governor of the central bank of bahrain, at the 15th world islamic banking conference 2008, manama, 24 november 2008. * * * your excellencies, ladies and gentlemen : “ salaam alaikum ” it is a pleasure to participate in this opening session, and to have this opportunity to welcome you all to the 2008 world islamic banking conference. this is the 15th conference of its kind to have been held here in bahrain, and in july of this year, the first wibc european summit was held in london. the inaugural european summit was yet a further indication that islamic finance is rapidly moving into the financial mainstream. i should like to begin by thanking the many distinguished speakers who will be appearing during the conference, as well as the event organisers and sponsors. collectively, your contributions are the reasons for the success of this event. i should also particularly like to extend a warm welcome to his excellency heng swee keat, managing director of the monetary authority of singapore. thank you for being with us today. the theme of this session – “ ensuring stability : international perspectives on creating an effective regulatory framework ” – is timely in my view. until very recently, many commentators and analysts believed that the economies of the gcc were an oasis of calm in the ongoing global financial turmoil. however, since the collapse of lehman brothers in mid - september, it has become clear that no part of the world can be immune to the present crisis. we have seen a vastly changed financial landscape, and there is little doubt that the availability of funds and the costs of borrowing are being affected in all parts of the world. against the background of this global financial turmoil, it seems a good time to take stock of the prospects for the islamic financial industry, and to consider in particular how best to ensure the stability of the industry in future. in recent months as the global financial crisis has deepened, many commentators have pointed out that islamic financial institutions have escaped relatively unscathed from the severe downturn which is affecting most conventional financial institutions. this certainly presents the industry with an opportunity to continue its rapid and successful growth of recent decades. however, the fact that shari ’ a compliant institutions have avoided significant losses resulting from the global financial crisis does not mean that there are no lessons that they can learn from the fallout. let