As a complement to a good corporate governance structure, credit institutions should be equipped with a sound risk culture. Such a culture should infuse the design and workings of the organisation and its management criteria, systems and methods; it should be founded on control procedures whose reliability has been duly tested; and its application should be overseen by departments possessing sufficient power and independence. All this should be substantiated by internal and external auditors and be highly visible to the market. Finally, I would like to stress the need for all types of financial institutions to apply due diligence. They should know their clients and systematically monitor their operations so they might prevent, and where necessary curb, not only money laundering and the funding of terrorism but also any other attempt to use the financial system for illegal or unethical purposes. Beyond the obligation all individuals and corporations have to observe and comply with the law, good practices in this area have an important supervisory dimension, as they play a decisive role when preventing or curbing such serious risks as those pertaining to reputation, legal risk, and so on. Despite the unquestionable importance of market discipline and good corporate governance, these are complements to banking supervision and, therefore, cannot replace it in respect of its essential task, namely "to promote the sound functioning and stability of the financial system", as stipulated in article 7 of our Law of Autonomy.
Michael C Bonello: The Maltese economy – the recession and the challenges beyond Speech by Mr Michael C Bonello, Governor of the Central Bank of Malta, to the Committee on Economic Affairs and Development of the Parliamentary Assembly of the Council of Europe, Attard, 28 May 2010. *  *  *  With a GDP of € billion and a population of around 400,000 living in an area of 316 km2, Malta is the smallest and most densely populated country in the EU. With an average tradeto-GDP ratio of 82% since membership in 2004, it has the second most open economy in the Union. Malta’s business cycle is closely synchronized with that of its main trading partner, the EU, which accounts for 61% of its exports of goods and services. The small size of the country necessarily implies a narrow export base and a dependence on strategic imports, such as fuels and industrial supplies. These characteristics constitute a challenge for policymakers in that the economy’s performance is highly sensitive to external events and to sector specific shocks. The impact of the recession It was thus inevitable that the headwinds unleashed by the global recession would test the resilience of the Maltese economy. Although euro area membership helped to cushion the impact, as expected in such an open economy the shock was transmitted primarily through the trade channel as external demand shrank. The downturn was particularly pronounced in tourism and manufacturing, two sectors that are highly dependent on demand abroad.