Two facilities created earlier in 2008, the TSLF and PDCF, were set up to deal with the unwind of repo and other trades between private counterparties as doubts about the underlying collateral had increased.16 As discussed by Gary Gorton this unwind was similar to a traditional bank run.17 Since much of the credit boom leading up to 2007 was financed by  14  These experiences also, however, underscore the need for robust statistics on the financial system, and efforts are underway at numerous task forces and agencies to improve these statistics. For example, the Committee on the Global Financial System (currently chaired by New York Fed President William C. Dudley) created an ad-hoc group for the review of statistical proposals in 2010; see Committee on the Global Financial System (2012), “Improving the BIS international banking statistics” CGFS Papers No 47 (Basel: Bank for International Settlements, November). Similarly, the Financial Stability Board and International Monetary Fund are currently undertaking an effort endorsed by G20 finance ministers and central bank governors to address financial market information gaps; see IMF Staff and FSB Secretariat (2011), “The Financial Crisis and Information Gaps” Implementation Progress Report (June). 15  An example of this bewilderment is V.V. Chari, Lawrence Christiano, and Patrick J. Kehoe (2008), “Facts and Myths about the Financial Crisis of 2008” Federal Reserve Bank of Minneapolis Research Department Working Paper 666 (Minneapolis: Federal Reserve Bank of Minneapolis, October). Note that the current posted version is updated from the version as initially published.
While the basic legal, regulatory and supervisory framework that takes into account the distinctive features of Islamic finance are already in place, efforts are now underway to put in place a comprehensive infrastructure to deal with the new challenges confronting the international financial system. Looking beyond the current crisis, an integrated crisis management framework will be part of this infrastructure. It is recognised that a more facilitative and modernised legal framework is also required and that the boundaries of the regulatory framework for Islamic finance would also have to be regularly adapted to keep pace with the evolution and transformation of the financial system. Finally, the supervisory framework for Islamic finance is also being reinforced by a financial safety net framework that comprises the lender of last resort facility and a deposit insurance system. These financial arrangements are now in place in Malaysia. Also important are the institutional arrangements for resolution of troubled Islamic financial institutions. In Malaysia, we have in place a mandated resolution mechanism to provide for expedient, effective and cost efficient resolution of Islamic financial institutions. Yet to be put in place however, is a mechanism for cooperation between regulators within and across jurisdictions for resolution to contain potential systemic risks beyond the national boundaries.