AIG needed liquidity and it needed it that day. In the early days of the intervention, when we knew precious little about AIG, but knew that it needed billions of dollars, we were truly facing a binary choice to either let AIG file for bankruptcy or to provide it with liquidity. It is worth noting that this choice fell to the Federal Reserve because Congress had equipped it with an ability to lend to a non bank like AIG in extraordinary and exigent circumstances. Given AIG’s situation on September 16, 2008, and given what had transpired over the preceding days and months, how could we responsibly not have lent pursuant to our statutory authority? With authorization from the Board of Governors under Section 13(3) of the Federal Reserve Act, the Federal Reserve Bank of New York had the ability to provide liquidity to AIG by making a fully secured loan. The decision to activate the authority and lend was clearly justified on the merits but was difficult because of the collateral consequence, the moral hazard resulting from AIG’s rescue. Within hours of the policy determination, the Federal Reserve took over the term sheet originally created by a private sector consortium of commercial banks. In the aftermath of Lehman’s bankruptcy, the consortium was no longer prepared to lend to AIG.
Increased global engagement in Shariah matters among scholars, practitioners and regulators through international discussion platforms, together with the massive flow of knowledge, ideas, technology and people across borders also cumulatively foster a greater global understanding on the practices in Islamic finance. Innovation has fundamentally transformed the global financial landscape at a rapid pace and is undeniably a driver to sustain growth and to secure the competitive advantage of financial market participants. In the context of Islamic finance, the broadening of the frontier of product development can be further propelled by intensifying exploration, research and development initiatives and through intellectual discourse and engagements. It is duty-bound for us to continuously expand the dimensions of Islamic finance, hence contributing towards improving financial stability and economic prosperity in the interest of the local and global community. I am confident that this conference and the opportunities presented for deliberation on the research papers will be a fruitful one. I wish all delegates and participants a successful conference. With the lafaz Bismillahir Rahmanir Rahim, it is my pleasure and honour to declare open the 2nd Foundations of Islamic Finance Series Conference. BIS central bankers’ speeches  3