Notable examples are the Financial Stability Oversight Council in the United States, the UK Financial Policy Committee and the European Systemic Risk Board (ESRB) in the EU. I shall focus in my address on the proposals by the FSB and the Basel Committee on Banking Supervision, which has worked under its guidelines. I shall refer to four broad issues which I consider to be most important in the new regulatory framework being designed. Firstly, the entry into force of the new capital rules known as Basel III, the basic thrust of which, as we all know, is to strengthen banks’ capital; second, the new treatment of systemic banks and the new banking resolution frameworks. Here, I shall comment on potential reforms to banking business models, which we normally call “structural reforms”. And finally, I shall refer to outstanding accounting issues, with significant consequences for bank balance sheet management, geared to achieving the sought-after convergence between US Financial Accounting Standards Board (FASB) rules and the International Accounting Standards Board (IASB) criteria applied in Europe. The entry into force of the new Basel III capital accord One of the key elements of the new regulatory framework is the amendment of the prudential rules governing the banking sector by means of the agreement we refer to as “Basel III”. The adaptation of this accord to the European arena came about just a few days ago with the approval of the new Capital Requirements Directive.
The Malaysia International Islamic Financial Centre, or MIFC, initiative, launched in August 2006, has taken Malaysia's liberalisation strategies to a new level with the aim of positioning Malaysia strategically in this new growth area. Islamic banking institutions are allowed to undertake a broader array of Islamic financial activities that include commercial banking, consumer banking, investment banking as well as international currency business under the MIFC initiative. Financial institutions need to consider their own competitive positioning in this area and to have the appropriate strategies to participate in this dynamic growth sector. Finally, the regulatory and supervisory paradigm will also continue to evolve. Indeed, we have over the recent decade witnessed significant global shifts in the approaches to regulation and supervision across many countries. These have ranged from radical policy responses in some countries that led to the introduction of costly regulatory systems to address the problems have emerged, to bold deregulatory measures pursued in other countries, especially during times of exuberance and strong market conditions. A convergence towards the middle ground between these two extremes now seems to be emerging. Two dimensions of regulatory change will be relevant to the context of the new environment. First, the emphasis on creating a strong risk management culture that is fundamental to sound banking operations will become significantly more pronounced. T he transition to Basel II and the implementation of the risk-based supervisory regime are important elements of this change.