So there is a degree of intrinsic uncertainty both about where in the risk bucket the true PD lies and indeed about whether it lies in the assigned risk bucket at all. To gauge the importance of these uncertainties, the mortgage portfolios of two large banks were examined and capital calibrated using their reported models. These capital ratios were then simulated under two counterfactual assumptions: (a) that true PDs were uniformly distributed within the risk bucket; (b) that true PDs were higher than recorded PDs by one risk bucket. The results are illustrated in Charts 1 and 2. Chart 1 looks at the distribution of the reported capital ratio, indexed to 100, assuming model uncertainty only exists within each risk bucket and is symmetric. Even under this assumption the confidence intervals are significant, with the “true” capital ratio lying anywhere between 15% above or below the reported ratio. Once we allow for the possibility of PDs being systematically under-estimated, the degree of uncertainty is greater still. The “true” ratio then lies up to 35% below the reported ratio. That equates to several percentage points of capital. A different way of gauging the effects of model uncertainty is to look at how different banks value essentially identical exposures. For UK banks’ wholesale credit portfolio, the FSA conducted just such an exercise in 2009.6 A hypothetical portfolio was constructed based on 64 externally rated corporate, bank and sovereign exposures.
Less directly related, but just as important, are our Stock Exchange, and our network of asset  1/3  BIS - Central bankers' speeches  managers and professional advisers. They anchor a company, especially its finance function, in Hong Kong and naturally encourage it to tap our financial intermediaries for advice and financing. 7. Turning to policy support, a key source of growth in finance in recent years has been green and sustainable finance. An area where the Government has been active in supporting is Hong Kong's sustainable loan market. 8. It is estimated that 100-150 trillion US dollar in climate finance will be needed in the next three decades to achieve a Paris-aligned scenario of limiting global warming to 1.5° Celsius. In Asia, we will need 66 trillion US dollar; a significant share of this would go to China. 9. With surging demand for green financing, it is important that there are widely recognized standards that market participants can rely on when investing or when tapping the capital markets to meet their financing needs. In this regard, I would like to compliment APLMA for the good work. Its Green Loan Principles, Social Loan Principles and Sustainability-Linked Loan Principles provide useful guidance and benchmarks for the market. 10. Hong Kong as an international finance centre can contribute a great deal to channeling capital and investments and helping the region bridge green financing gaps. In fact, we have one of the Asia's largest sustainable loan markets.