such issues. in conclusion, i would like to express the hope that the deliberations of the forum, conducted on a confidential basis, will focus attention on the identification of potential systemic risks and on the promotion of effective risk management. i said earlier that complacency must be avoided. it has taken several years of hard work at both the political and technical levels to put malta on the map as a reputable financial centre. a rigorous but non - intrusive regulatory regime based on international best practice combined with easy access to the single regulator has been a major plus. other contributory factors are a legal framework based on common and civil law, 55 double - taxation treaties and a competitive fiscal regime, and, not least, membership of the euro area. malta ’ s tradition of commercial banking based on a conservative funding model in which loans are entirely financed by retail deposits is a source of additional strength. our banks, moreover, maintain capital and liquidity ratios well above the regulatory minimum and their resilience is confirmed by stress test results. we undoubtedly have reason to be satisfied. there can, however, be no letup. there is need for both a greater awareness about systemic risks and for enhanced efforts at risk mitigation and resilience building. we should not forget that there is a relatively high concentration of risk on both sides of bank balance sheets, in particular a significant exposure to the real estate sector, both in the form of loans and collateral held against them. at a time when we are witnessing an increase in corporate nonperforming loans, i reiterate my call for the banks to expand their provisions commensurately with this heightened credit risk. at the same time, dividend policies must be mindful of the need for higher levels of retained earnings in order to further strengthen capital buffers, also in view of the more onerous requirements of basel iii. finally, i would encourage risk officers to go beyond simple compliance with regulations and proactively espouse prudent risk management practices and good judgement. bis central bankers ’ speeches before i hand over the floor to professor bannister, i would like, on this my last official meeting with the financial community, to express my sincere appreciation to you all for the cooperation and understanding i have benefited from over the past twelve years. thank you. bis central bankers ’ speeches

lies behind the many initiatives taken recently to strengthen the institutional framework for financial stability, most notably in the eu and on which mr fell will be elaborating later on. it is not surprising that in this new emphasis on macro - prudential supervision of the financial system, central banks are expected to play a key role. with regard to the situation in malta, it bears recalling that a financial stability office was created in our central bank as long ago as 2000 when the bank was still responsible for banking supervision. the decision to add a macro - prudential dimension to our micro - prudential work was motivated by a realization that potential systemic risks were not being adequately monitored. our work in this field was given a boost in 2002 when malta became one of the first countries to undergo an imf / world bank financial sector assessment programme ( fsap ). though the bank had already built up a small stress testing capacity and had undertaken assessments from a macro - prudential perspective, the fsap proved a very valuable learning experience and gave our work a new sense of purpose and direction. since then the bank has endeavoured to build up expertise in this important field by following closely developments abroad and through exchanges with other national central banks and the ecb. we are even now in the process of restructuring our internal set - up and human bis central bankers ’ speeches resources to take into account lessons learned during the financial crisis and to be able to participate actively in the newly - established european systemic risk board and its substructures. the financial stability function will be composed of two separate offices, one dealing with surveillance and the assessment of systemic risk, the other focusing more on policy, stress testing and crisis management. the importance of monitoring systemic risks and putting in place an effective response mechanism has indeed been one of the major lessons learnt from the crisis. the cost in terms of the destruction of wealth of being inadequately prepared from a macro - prudential regulation point of view is still today being counted. the contribution of financial stability to sustained economic growth should clearly not be underestimated. the fact that malta ’ s financial system has not been directly affected by the global crisis should not, therefore, give rise to complacency. no jurisdiction can be totally immune from systemic shocks, whether of domestic or external origin, or from contagion. both the mfsa, from their regulatory and supervisory perspective, and the bank, from a financial stability perspective, are acutely