Durmuş Yilmaz: Managing liquidity in the Islamic financial services industry Speech by Mr Durmuş Yilmaz, Governor of the Central Bank of the Republic of Turkey, at the conference on “Managing liquidity in the Islamic financial services industry”, organised by the Islamic Financial Services Board (IFSB), Istanbul, 6 April 2011. *  *  *  Distinguished Participants, Esteemed Guests and Valued Members of the Press, Welcome to the Conference on Managing Liquidity in the Islamic Financial Services Industry organized by Islamic Financial Services Board (IFSB). As the Central Bank of Turkey, we are very pleased to host this special event. I would like to extend my appreciation to the IFSB for organizing this timely conference in this beautiful city. I believe that this conference will be a productive platform for fruitful discussions on Islamic liquidity management practices. In this opening speech, I will share my thoughts regarding managing liquidity in Islamic finance and the challenges ahead. Distinguished Participants, As you all know, unconventional polices and extraordinary measures have been put in place by central banks and fiscal authorities during and after the financial crisis. As liquidity concerns played a major role in the deepening of the crisis, intense discussions on a new structure in global liquidity management have dominated the global arena. In this context, liquidity management issues in the Islamic Financial Services deserve a special attention. Successful implementation of a solid liquidity management system can be the key for sustaining the rapid growth of the industry.
If hosts cannot influence the process of supervision or crisis management, their trust in and use of the information from the home authority will be very limited. Sharing information and cooperating on regulatory actions may be problematic already in normal times, but is probably much more difficult in a crisis situation when economic risks and costs are clearly visible. So far, cooperation and coordination in crisis situations is dealt with in the EU by various Memoranda of Understanding. Even if these MoUs are not legally binding, they are valuable documents. They provide a basis from which more operational crisis cooperation agreements can be developed by the countries and authorities that see the need to do so. But looking at this increasingly complex patchwork of supervisory colleges, central bank networks and MoUs that we are now creating, one cannot help to wonder if there are not any better alternatives for cross-border cooperation. Future alternatives to the home-host model What are, in the long term, the alternative models to the current home-host set-up? In the EU, we are committed to creating a single market for financial services. If we take off our national central bank and supervisor hats, are we really convinced that the home-host model is the best one in the long run? After all, several serious alternative models have been suggested. The pros and cons of the three main models are reviewed in an interesting paper by Oosterloo and Schoenmaker.3 I will briefly comment on these.