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A UAE federal committee tasked with exploring a unified banking and finance law held its first meeting in Dubai under the chairmanship of Sheikh Hamdan bin Rashid Al Maktoum, Deputy Ruler of Dubai and UAE Minister of Finance.

 

The committee has been requested by the UAE federal cabinet to prepare amendments to two federal laws regarding the UAE Central Bank.

 

One of the two laws is the Federal Law 10/1980 that concerns the Central Bank, the monetary system and the organisation of banking in the country. The second law is the Federal Law 6/1985 regarding Islamic banks, financial institutions and investment companies. The committee now oversees the process of amendment and determines any move by the Cabinet to merge the two laws into one.

 

Through the amendments, the committee will also work on identifying and avoiding the gaps in the country's financial and banking system.

 

June 28, 2010

 

 

Analysis and Forecast: Decreasing Risk

 

The news that a federal committee is now actually meeting and moving towards unifying the banking laws in the UAE is a good move. First and foremost, it ensures that further decoupling of the Abu Dhabi and Dubai economies is restrained. The Dubai property crash has resulted in a contraction in the Dubai economy and a decline in the working population. Abu Dhabi on the other hand, has been able to maintain limited growth. With Abu Dhabi reluctant, and largely unable to secure an outright bailout for Dubai, both economies appear to be moving in different directions, further widening the gap between them.

 

The banking sector, however, is one unifying area. For example, many of Abu Dhabi’s banks have greatly suffered due to the Dubai crisis due to large exposure to the Dubai property sector and near uncontrolled lending.

 

The danger is now if the move by the government is to tighten Abu Dhabi’s grip on the UAE’s banking system. Sources close to Political Capital indicate that Dubai is concerned that such a unified banking law, which being federal supersedes local laws, would be detrimental to Dubai’s banking sector. If the committee does indeed act with the aim of creating greater control for Abu Dhabi in the UAE banking sector, there is a danger that there will be a serious shaking in confidence in the UAE’s banking sector generally, particularly Dubai’s, which is now looking to enhance it’s position as the main financial hub in the region.

 

As a result, whilst the move on the surface appears to be a correct one, its application will need to be closely watched.