- compliant high quality liquid instruments that could be used to meet a stock of liquid assets test. as you know, the cbb has undertaken a number of initiatives in recent years to assist the islamic financial sector to overcome this difficulty. nonetheless, although recognizing that the problem is a difficult one, the management of islamic financial institutions have a responsibility to ensure that they take appropriate steps to limit the risk of illiquidity to their institutions. prudent banking requires management to consider risk adjusted profitability. for example, putting a large proportion of the bank ’ s assets into potentially profitable, but also highly illiquid, real estate development projects may fail to achieve an appropriate risk reward tradeoff. if a bank has put all of its assets into long - term illiquid assets, it may show high levels of profitability for a few quarters, but it is unlikely to remain in business for very long. finally, let me turn to the role of the boards of directors and of senior management. the financial crisis involved failures of corporate governance at many different levels. there is a common pattern behind many of the failed financial institutions of the last 18 months. in many cases, the chief executive was a dominant figure who made sure that he alone took all important decisions. there was no culture of open debate and discussion within the institutions, with the result that members of the board of directors did not feel able to challenge the chief executive ’ s decisions. many bank boards lacked banking experts. individuals were recruited to the board of banks for their connections rather than for their knowledge of the banking industry and the ability to ask the right kind of questions. boards of directors also failed in their fiduciary duty to consider the interests not just of shareholders, but also of creditors and depositors. banks are not like other corporations where directors need to consider only the interests of shareholders. banks have a special position of trust in that they are charged with looking after other people ’ s money. this means the interests of creditors and depositors need to have equal weight with those of shareholders in the decisions taken by the board of directors. recognition of the directors ’ fiduciary responsibilities is, therefore, an essential element of corporate governance for banks. this observation applies with special force to the islamic financial industry. the fiduciary duty of the board of directors of an islamic financial institution does not only relate to the interests of shareholders, depositors, and other creditors, but also to investment account holders who bear many of

the same risks as shareholders, but who lack the same control rights. boards of directors and management therefore have a fiduciary duty to consider the interests of a wide range of stakeholders. it is essential that sharia - compliant institutions reflect this requirement in their corporate governance arrangements. the four issues that i have mentioned today – avoiding “ straight line thinking ”, avoiding herding behaviour, managing liquidity risks, and high standards of corporate governance – are not the only lessons that can be learned from the financial crisis. however, i believe that these lessons are the ones of greatest relevance to the islamic financial industry, and ones that it needs to give especially careful attention to in reforming its own practices. while the financial crisis will result in regulatory changes which will apply to conventional and islamic banks alike, the primary responsibility for ensuring sound and prudent banking practices must reside with the owners and managers of the banks themselves. post - crisis reform needs to begin with the industry examining carefully its own practices and considering whether they meet the standards that its various stakeholders have a right to expect. only by doing so will it be able to sustain the public trust which is an essential component of a successful financial industry. as the financial crisis has shown, there is little point in pursuing short - term profitability if the long - run result is a loss of public trust in the industry itself. on that note i should like to thank you for your attention and to wish this conference every success.