Jaime Caruana: Basel II and corporate governance issues Speech by Mr Jaime Caruana, Governor of the Bank of Spain and Chairman of the Basel Committee on Banking Supervision, at the 2nd Islamic Financial Services Board (IFSB) Summit 2005: The Rise and Effectiveness of Corporate Governance in the Islamic Financial Services Industry, Doha, 24 May 2005. *  *  *  Introduction and overview I would like to thank His Excellency Governor Abdulla Khalid Al-Attiya and the Qatar Central Bank the hospitality and Professor Rifaat and the Islamic Financial Services Board for inviting me to speak this evening before such a distinguished gathering. It is a great honour for me to be here at what I am sure will be a most successful and rewarding Summit. I consider it a privilege to have the opportunity to share with you some thoughts on two timely and important topics: corporate governance and the Basel II capital framework. My contribution to this important conference comes with a degree of humility. Although I understand that some of the roots of Islamic finance can be traced back to my own country during the time it was known as al-Andalus, I cannot claim to be an expert in Islamic finance, and I certainly would not presume to talk about the specificities of Islamic banking before such a knowledgeable audience. Suffice it to say that we all know that there are differences between Islamic banking and what we normally refer to as “conventional” banking.
We would like the guidance to be relevant not only to Basel Committee member countries, but to non-member countries as well. We would therefore value your feedback. As we take our work forward in the Basel Committee, and as the IFSB conducts its own work in preparing its exposure draft, I believe we would all benefit from keeping a sense of proportion. Clearly,  4  BIS Review 38/2005  we cannot have the same expectations for the governance of a large, complex bank that we have for a much smaller bank. When the Basel Committee issues supervisory guidance, we typically say that supervisors’ expectations should be commensurate with the size, complexity and risk profile of the institution. That applies equally here. My hope is that we can raise the bar for the governance of the banking industry as a whole, while concentrating our supervisory resources on the governance of the most complex and sophisticated institutions. Conclusion I realise that I am all that stands between you and a marvellous gala dinner, so I will keep my closing remarks very brief. I would just like to emphasise that sound corporate governance should be considered a key element of a bank’s ability to understand and manage its risks. As supervisors, we should direct our resources to helping banks improve their controls, culture and clarity in respect to risk management. In so doing, I believe that we will help achieve our objective of a stable and healthy banking system that contributes to the proper functioning of the economy.