To sum up, the extent to which the central bank uses collateralised lending to intermediate between banks has proved helpful in restoring confidence and “real money” financial flows in the underlying asset markets – the markets in which the collateral is priced. This has repaired links in the early stages of the transmission channel, the viability of which depends on those collateral prices. These links would have been brutally and perhaps irrevocably severed, if private arbitrage had been the only force of market motion, as in normal times. But increased intermediation has an impact on the liquidity risk exposure of banks, on their ability to carry out maturity transformation, as well as on the liquidity of specific money market segments. Whether the impact is positive or negative is hard to say. But moral hazard – which is the pitfall of any such type of thinking – makes conditions (and behaviours)  2  The significant increase in activity in the primary market for covered bonds – which the ECB started purchasing in July 2009 in the context of the covered bond purchase programme – is an example of how these measures have stabilised financial markets. 4  BIS Review 83/2010  change in response to central bank actions. As was the case at the start of the rational expectations revolution in macroeconomics, a prudent central bank needs to internalise the private sector’s response to its own actions. 4.
It should be abundantly clear by now to any financial institution that is serious about VBI, that, the task of building the human and intellectual capital to achieve and sustain value-based business models cannot be left solely to the human resource departments. It requires nothing less than strategic direction and resourcing decisions at the highest levels of the organisation. Changing mindsets Einstein once said “The world as we have created is a process of our thinking. It cannot be changed without changing our thinking”. The world today continues to push the limits of social and environmental thresholds, that are posing increasingly serious threats to humanity. VBI is therefore, much more than a current and passing fad, but a deeper conviction of the critical need 3/4  BIS central bankers' speeches  to begin the process of changing mindsets in a lasting way. Financial institutions are a key, but not the only catalysts in this process. Customers and investors need to be supported with relevant information, along with the means and ability to compare such information, in order to better understand the value propositions of Islamic finance. The encouragement of pension and institutional funds with a sustainable investment orientation, particularly in markets where such funds remain largely underdeveloped, would be important to provide a stronger impetus for VBI. Credit rating agencies could also be important contributors to a new landscape, with stronger emphasis on economic, social and environmental sustainability in assessment frameworks and methods.