Given the Bank of England’s general concern for systemic risk, we would tend to evaluate this question in terms of whether the existing cushion of capital has given the right level of protection to the system, ie have we established the right level of tolerance towards banking crises. Individual bank failures do not prove inadequacy of the framework - although a complete absence of bank failures would suggest severe overprotectionism. It is very difficult to answer this question definitively, given that bank failures and banking crises tend to have their roots in a number of different causes, not just inadequate capital. It is difficult to say therefore how much difference extra capital would have made, or how many more crises would have resulted had the regulatory capital demand been lower. Nevertheless the frequency of crises, even in developed countries since the Basel Accord was implemented, is not so low as to make us feel that the regulatory demand for capital is overstated. Using IMF data on banking crises, we find that during the BIS Review 70/2000  4  1990s four out of 11 G10 countries have suffered a banking crisis - a statistic which I do not find particularly comforting. And, although developed countries tend to escape the twin plague of a banking crisis combined with a currency crisis, we should not suppose that this rather high incidence of crisis in developed countries is mitigated by the costs of the so called crises being noticeably low.
The GFC has also taught us that even the largest banks in the world are not immune to failure in risk control and management and, when they failed, there would be devastating effects on systemic stability and on the society at large. 4. Fellow INEDs, while you may have come from a rather diverse background, I believe most of you know each other quite well already. This is because all of you have worked for decades in your respective fields, crossing the paths of a wide spectrum of industries, and have achieved proud accomplishments in different shapes and forms. It is your unique experience and expertise, your reputation and your willingness to serve the banking sector that have brought you together as INEDs today at this Conference. 5. As INEDs, you play a crucial and irreplaceable role in the governance of the banks in Hong Kong, serving not only the shareholders but also the public at large, given the special and important role of banks in the society. I think you will agree with me that in the interest of good governance, a board of directors has to provide the needed steer, guidance and checks and balance to the bank. Clearly this can only be achieved if the INEDs can function effectively and efficiently. Without functioning INEDs, the board is just another gathering of the senior bank management. We may as well abolish the board of directors as it would serve no real or useful purposes. 6.