In this respect, a regulatory and supervisory framework based on high international standards is already in place. Maltese legislation in this area in fact incorporates almost all the features of the corresponding EU directives, and the legislative  4  BIS Review 70/2002  amendments I have just referred to have brought about almost total harmonisation. Institutional responsibilities are divided between the Malta Financial Services Authority, which is responsible for the regulation and supervision of banking, insurance and investment services; and the Central Bank, which is charged with ensuring the stability of the system as a whole. The Bank is also responsible for the domestic payments system, which is being upgraded in line with developments in the euro area. According to a recent background paper prepared by the ECB , Malta already has a financial intermediation mechanism that broadly mirrors the composition of different market segments in the euro area member states. Despite the growth of non-bank financial intermediaries and the development of money and capital markets, the banks remain the key financial institutions. Total bank assets amount to more than double GDP, whereas the ratio of domestic credit to GDP is broadly in line with the EU average. More importantly, the banking system is generally healthy, enjoying ample liquidity and a broad capital base, with the ratio between own funds and risk-weighted assets standing close to 14%. Some institutional aspects of EMU preparations I shall conclude with some remarks on preparations of a more operational nature for eventual integration within the ESCB.
This diversity of exchange rate regimes can be explained in terms of the progress made thus far by these countries in disinflating their economies; their degree of openness; the extent of capital account liberalisation; and the adequacy of their reserves. Generally speaking, during the early phase of transition when many accession countries were faced with the task of disinflating their economies and restoring the credibility of monetary policy, fixed exchange rate regimes were the norm. Then, a credible anchor in the form of the currency of a low-inflation trading partner was viewed as the best strategy for meeting these objectives. The rationale is not difficult to understand. The persistence of inflation differentials under a fixed exchange rate regime would lead to an appreciation of the real exchange rate, undermining a country’s external competitiveness. The mere adoption of a fixed exchange rate indeed signals the intention to subordinate monetary policy to exchange rate policy, adding to the credibility of anti-inflationary monetary decisions. As these countries progressed with disinflation and as the emphasis shifted towards integration with the EU, the continuation of structural reforms and attracting sufficient capital flows to enhance real convergence, a gradual move to more flexible regimes become feasible. At first sight, such a shift would also seem to be indicated for Malta, particularly as the capital liberalisation programme approaches full implementation.