bank market. They commended efforts to strengthen further the financial regulatory and supervisory frameworks, including measures to improve banks' risk management systems, implement remaining Financial Sector Assessment Program (FSAP) recommendations, and assess the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework. These measures have helped the banking system to remain profitable and well-capitalized. Nevertheless, Directors encouraged continued vigilance in identifying and responding to any evolving risks. They underscored the importance of regular stress testing of the banking system, and encouraged the authorities to update the resolution framework for financial and non-financial institutions, further enhance transparency and disclosure by the corporate sector, and review institutional mechanisms for cross-border and cross-sector supervision. Directors considered that the exchange rate peg to the U.S. dollar has provided a credible and stable nominal anchor and contributed to macroeconomic stability. Directors noted the staff's view that the likely undervaluation of the Saudi riyal in 2008 was temporary and expected to close over the medium term. Some Directors encouraged the authorities to consider a more flexible exchange rate regime for the Gulf Cooperation Council (GCC) monetary union, in consultation with other members of the union. Directors encouraged progress toward the monetary union by developing operational responsibilities and the governance structure of the future central bank, harmonizing macroeconomic statistics, and establishing an efficient payments system. --More
