New legislations, both in the central bank act and financial institution act will empower the central bank to have much more ability to manage the nature of commercial banks and will follow the principle of transparency when we shall BIS Review 111/2000  2  be able to do much more for such an important event as a national election and hopefully then commercial banks would be much less inclined to cooperate in less than virtuous activities. Whilst it is probably true central banks of the modern era spend so much time in trying to stabilise national events, the biggest single cause of untold misery, poverty, death and famine in the modern economy is probably neither disease nor natural events, but it is the ever more frequent financial and currency crises and many central banks in many economies have been helpless in this prevention. There are now many international fora to tackle these problems, but all of them now are bent on making emerging markets behave themselves better with a better system, monitor themselves better and monitor what’s going on in the rest of the world, the latter is actually an impossibility. All financial transaction of significance is now computerised. A central bank with any kind of competence will have good access within the nation and understand and manage their own destiny. Given a reasonable government and even minimal legal system, each nation should be able to keep peace and stability. But international transaction is something else.
And the Bank now has a comprehensive set of market wide and bilateral facilities. These developments give the Bank tremendous flexibility to support financial institutions during periods of stress. As you will see from the FPC’s published record, it was in that context that the Bank decided to announce two additional ILTR operations in the event of a “yes” vote in the referendum on Scottish Independence, as a precautionary measure to backstop sterling market liquidity. As part of its contingency planning, the Bank assessed its ability to provide liquidity support to the banking system should it become necessary and concluded that the range of tools within the existing framework offered sufficient flexibility to respond. But the Bank is not standing still; we are continuing to develop our liquidity insurance framework to ensure that it can react to a wide range of liquidity challenges. First, as part of the strategy to broaden liquidity provision, the Bank has committed to consider the feasibility of offering Shari’ah compliant facilities. All banks must hold an adequate stock of liquid assets to meet prudential regulations and, as the most liquid assets in the economy are the reserves held by banks and building societies on account at the Bank, it would be beneficial to Shari’ah compliant banks to have access to our balance sheet. There are significant challenges to this work: for example, in designing a Shar’iah compliant deposit account which has similar economic properties to interest-paying reserve accounts and in identifying sufficient Shari’ah compliant collateral to support lending facilities.