Mr Carse discusses the importance of ethics in banking  Speech given by Mr David Carse, Deputy Chief Executive of the Hong Kong Monetary Authority, at the Banking Conference on Business Ethics in Hong Kong on 15 September 1999. *  *  *  Ladies and gentlemen, I am pleased to have the opportunity to speak today at this important conference on business ethics. This is an area that is becoming a growth industry, and it is one that it is particularly relevant to banks given the position of trust that they occupy. Indeed, this is one of the daunting things about giving a speech about the importance of ethics in banking. It all seems too obvious. After all, what do we mean by ethics in business? It means, I would suggest, trying to be a good corporate citizen; trying as an organisation to adhere to certain ethical values; and trying to do the right thing by all the various stakeholders – customers, employees, suppliers and shareholders – that any business organisation has. It means, as one writer has put it, “choosing the good over the bad, the right over the wrong, the fair over the unfair”. Put this way, is there any respectable bank that would claim not to attach high importance to core ethical values such as honesty, integrity, fairness, responsible citizenship and accountability? Is there any bank that would claim that it was right to accept bribes in return for loans, to lend to connected parties and to cheat customers?
Challenges for the next decade  I want to devote the remainder of this lecture to the challenges facing the Monetary Policy Committee over the next ten years. That is not because I see major fault lines in the present arrangements. On the contrary, the careful institutional design that lay behind the construction of the MPC has proved its worth. Nor is it because I share some commentators’ boredom with a system that has remained largely unchanged for a decade. After all, in the area of macroeconomic policy, boredom is a good thing. Rather, it is a conviction that to remain successful the MPC must always be engaged in a process of continuous improvement. The anchoring of inflation expectations has been central to the stability enjoyed by the UK economy over the past decade. The key lesson from economic theory is not to take those expectations for granted – they depend on the actions of the MPC. Inflation expectations have been anchored because the MPC has responded to events that have pushed the outlook for inflation away from target, and households, businesses and financial markets have understood and anticipated our responses. So the main challenge facing the MPC is to keep doing whatever is necessary to keep inflation on track to meet the target. In modern models of inflation, monetary policy is represented by a “reaction function” that is sufficient, in that model, to pin down inflation and, therefore, inflation expectations. But that just assumes away the challenge facing us.