12. As I said earlier, we have a long tradition of universal banking in Hong Kong and we have not seen our universal banks turn into aggressive trading and sales outfits or principal risk-taking hedge funds. But we can definitely see the potential danger. We therefore need to ensure that our banks do not take on excessive risks in their chase for higher profits and bonuses. Banks holding customer deposits must keep their responsibilities to their depositors foremost in their minds and not allow their proprietary trading or i-bank activities to overshadow these responsibilities. If they fail in this regard, they will make the case for narrow banking themselves. Branch vs. subsidiary operations 13. Another strand coming out of the debates on banking structure relates to the question of whether banks should be required to operate in host jurisdictions as subsidiaries. There are two angles to be considered here: supervision and resolution. Some jurisdictions have taken the view, long before the Global Financial Crisis, that overseas banks operating in their jurisdictions should take the form of subsidiaries rather than branches. The main motivation, as I understand it, is that the host supervisors will have a much stronger regulatory handle, such as capital requirements, prudential limits, auditing, etc, to supervise a locally incorporated subsidiary than a branch. In a resolution scenario, many also favour subsidiarisation because it provides a clear legal entity structure which is easier to handle nationally under an insolvency situation. 14. But subsidiarisation is far from being the panacea for all ills.
Norman T L Chan: Universal banking – Hong Kong’s perspective Keynote address by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary Authority, at the opening session of the Asian Banker Summit 2011, Hong Kong, 7 April 2011. *  *  *  Distinguished guests, ladies and gentlemen, 1. I am very pleased to address this important conference this morning as it provides a timely occasion for us to take stock of what is happening to our banking industry at a time when the international financial markets are recovering from the Global Financial Crisis. Indeed, the landscape of banking has undergone very significant changes since the eruption of the crisis in 2008. And more changes are in store. Some might even argue that banking will evolve beyond recognition when compared with what we knew previously. Of course the international banking reform package, ranging from the new capital, liquidity and leverage regime under Basel III, the treatment of Global Systemically Important Financial Institutions to the use of macro-prudential tools etc, will have different implications for different banks and different jurisdictions. It is not my intention to discuss today the new international standards that have been and are about to be adopted as these standards have been talked about very frequently amongst bankers and regulators.