The momentum for regulatory reform is certainly increasing, with responses to the consultative documents issued by the Basel Committee on Banking Supervision due in April. A significant meeting of the G-20 finance ministers and central bank governors is scheduled for June in Busan, Korea, prior to the heads of state meeting in Toronto on the 26th and 27th June. The changes proposed to capital adequacy and liquidity requirements will inevitably impose additional burdens and costs on Islamic banks. However, as raising capital has not been a problem for the Islamic banking industry in the past, enhanced capital requirements should not slow their growth. Urging regulators to recognize the AAOIFI (Accounting and Auditing Organization for Islamic Financial Organizations) standards can also help Islamic banks in this respect. What qualifies as liquid assets has been a long standing issue for Islamic banks, but this is unlikely to change as a result of reforms to banking supervision. However, as liquidity is more than adequate for most Islamic banks, they should urge regulators to take a light-touch approach rather than impose additional burdensome requirements.
PROFESSOR RODNEY WILSON
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