BIS central bankers’ speeches  3  Second, we took additional non-standard measures to ensure that our interest rate decisions were transmitted effectively to the broader economy, despite the volatilities in the financial sector. If banks cannot easily access the money market or other sources of finance, they may not extend credit to households and companies, to the detriment of economic growth and employment. At the outset of the crisis in 2007, the ECB reacted immediately to the rapidly worsening liquidity conditions and heightened credit risk, particularly in the interbank markets. When stress in the financial markets re-emerged in the autumn of last year, the Governing Council of the ECB again took a series of measures to enhance the provision of liquidity to the banking system and to actively support lending, notably introducing two very long-term refinancing operations with a maturity of three years, which were conducted in December last year and in February this year. The exceptionally long maturity of these operations gave banks a longer horizon for their liquidity planning. It is also helping them to deleverage in a balanced and orderly manner over the medium term, thereby avoiding “fire sales” of assets and a downscaling of longer-term lending. At the same time, it is crucial that all the crisis measures taken by the ECB to ensure monetary stability in the euro area – the standard and the non-standard – do not create adverse incentives for market participants or unanchor inflationary expectations.
Embedded in this arrangement are also good governance and ethics, together with the upholding of the universal values of justice and fairness provide implicit checks and balances in the system. These very elements of Islamic finance, which are essential features as required by the principles of Shariah, provide an in-built mechanism that enhances the prospects for its soundness and stability. These explicit elements address several of the issues that have surfaced in the conventional financial system during the current crisis, including in particular the breakdown in governance that led to indiscriminate lending, excessive risk taking and irresponsible financial innovations that were motivated by greed and short-term gains. In Islamic finance, the process of innovation and formulation of Islamic financial products and services must also be done carefully and in accordance with Shariah. As it is recognised that unfettered financial innovation can become a major source of instability in the financial system, financial innovation in Islamic finance must have the primary objective of realising benefits to its users, thus incorporating ethical value propositions. The explicit risk sharing element between the financier and customer further ensures that these mutual benefits are well-supported through requirements for necessary information to be provided to the market on the risks borne by Islamic financial institutions. There is also the governance structure in  2  BIS Review 129/2010  place, for example, the need for the establishment of Shariah committees at Islamic financial institutions and Shariah audit.