Benchmark indices such as the Dow Jones Islamic Market Indexes and the Financial Times Stock Exchange Global Islamic Index Series in the international equity market and the listing of Islamic financial instruments on international exchanges have all contributed to enhance the depth of the Islamic financial markets as an attractive asset class for investment. On the regulatory front, the standardised international rules and regulations for the Islamic financial institutions now being issued by the Islamic Financial Services Board (IFSB) will be important in effectively ensuring the stability and soundness of the system. Two important standards, the standards for capital adequacy and risk management have been approved by the Council of the IFSB in 2005. The two standards have taken into account the aspects of risks associated with the different contracts in Islamic banking business. Proper assignment of capital charge on profit-sharing arrangement and the introduction of profit equalization and investment risk reserve are risk-mitigating elements to ensure the soundness in Islamic banking business. The on-going work in the area of supervisory review process, market discipline, corporate governance and transparency will complete the range of the prudential and supervisory standards of Islamic financial institutions. The increased participation in the IFSB from across the globe reflects the growing interest of the global financial community to be involved, at the onset, in the development of regulatory standards in Islamic finance.
Briefly, the important components of the solution for the financial sector were as follows: 1. The Government, later confirmed by Parliament, issued an unlimited guarantee stating that no depositors or other counterparties to Swedish credit institutions would suffer any losses. This was a fundamental measure in order to restore confidence in the Swedish banks both from domestic and from foreign depositors and other counterparties. The results showed themselves rather quickly, e.g., in the form of renewed interbank credit lines with foreign banks. Also the Swedish public remained calm and there were no runs on the banks. However, the government (Parliament) guarantee and the other measures must also be made known to all interested parties. 2. The mandate to implement the support policies was given to a new agency, the Bank Support Authority, which was at arm’s length from the political sphere but accountable to the Government. To avoid conflicts of interest, it was found appropriate not to have the Support Authority in either the Ministry of Finance, the Central Bank or the Financial Supervisory Authority. BIS Review 65/1998  -5-  3. A common framework of measures was constructed for support of the banking system. A strategy for deciding which banks to reconstruct and which to liquidate was developed and explained to the general public. The measures were designed to minimise costs for the Government and the risk of moral hazard.