We have seen an exceptionally long period of strong growth in the world economy, but that growth was based on large and unsustainable global imbalances. For growth to be sustained, it must be more broadly balanced, both geographically and across economic sectors. •  Second, the current crisis may dampen economic growth in the future, reduce growth in the capital stock and thereby lead to a prolonged reduction in the level of output. The composition of output might change as well. I would not be surprised if the financial sector, the car industry and the construction sector were to shrink regionally. The economies that will be affected the most are those where the financial sector has expanded significantly in the last 20 years. Especially in those countries the financial sector will obviously have to become smaller, because it has decoupled too much from the real economy and because experience suggests that banks may have become too big to fail, too complex to be managed and even too big to be rescued. •  Third, the simple statement that “if banks are too big to fail, they are probably too big to exist” is a reasonable rule. In any case, for large banks the capital should increase more than they increase in size. The post-crisis financial system should be more riskaverse, less leveraged, less complex. The prevailing business model will probably place greater emphasis on traditional banking activities, which tend to produce lower margins, but are also more robust, less risky and less volatile.
As an example, the HKMA and our peer authorities in the region have adopted fintech sandbox 3/4  BIS central bankers' speeches  regimes, which are effectively testing grounds with a well-defined scope and a clear timeline. The authorities do not generally stipulate an exhaustive list of regulatory requirements in these sandboxes; rather, the products are to be developed flexibly, and requirements would be evaluated during the process. Coordination among regulators has also already begun as the Global Financial Innovation Network (GFIN) is now inviting applications for cross-border testing of financial innovations. That said, while providing a conducive environment to support innovation, central banks and regulators would have to strike a good balance with its other functions in consumer protection and financial stability, especially as the new and innovative services grow in scale or become widely adopted. Cross-border coordination is also required to address potential arbitrage across jurisdictions, given the much wider reach of fintech products and services. Derivatives markets, on the other hand, have a much longer history. The regulatory framework should therefore be informed by history, and lessons from the global financial crisis must not be forgotten. Regulators need to guard against the problems that plagued derivatives markets before the crisis: namely, the overuse of leverage, excessive interconnectedness, and opacity. I don’t need to “preach to the choir” on the tremendous efforts exerted by regulators and market participants internationally to solve these problems.