This paper assesses and suggests means of improving the robustness of this regulatory framework. The quest for risk sensitivity in Pillar I rules caused regulatory complexity and opacity to blossom. This may have inhibited the effectiveness of supervisory discretion and market discipline (Section 1). In consequence, Pillar I may have borne too much of the load and Pillars II and III too little. Here I focus on Pillar III. There may be straightforward ways to rebalance the Basel scales, re-injecting market discipline. Having banks issue a graduated set of contingent convertible (“CoCo”) securities, which are responsive to early signs of market stress, is one possible way of doing so (Sections 2 and 3). That would have the practical effect of reinforcing Pillar I with Pillar III, so delivering a potentially more balanced and robust regulatory edifice. Getting from here to there may take time. But some modest adjustment to dividend and bonus distribution policies by banks would help (Section 4). Section 5 concludes. The first pillar The recently-agreed Basel III package delivers a material strengthening of regulatory standards. Though the details are complex, the essence of these reforms is easily described: “more of the same – and better”. So there will be more bank capital and in future it will be higher quality. Banks will be required, for the first time in an international accord, to hold liquid assets, and in future will be more resilient. Risk management will be more extensive and in future it will be more robust.
As well as building collaborative ties across the world, we are also creating partnership closer to home. There is a huge upside in tapping the considerable potential in fintech development in the Guangdong-Hong Kong-Macao Bay Area. The Bay Area has a population of over 66 million and a GDP of over $ trillion. With the deepening of the financial sector and the expanding cluster of technology talents and industrial base, the Bay Area is going to become one of the main engines of growth for China and a very fertile ground for innovation in financial services and fintech. 9. Recognising the importance of cross-border collaboration in the Bay Area, the HKMA, as a start, has signed a Fintech MOU with the Office of Financial Development Service (“OFDS”) 2/4  BIS central bankers' speeches  of the Shenzhen Municipal Government. Now, I am pleased to announce that, in pursuing our commitment to collaboration, Hong Kong and Shenzhen will jointly launch three fintech initiatives: (i) A fintech competition; (ii) A soft-landing scheme; and (iii) A talent development programme. Fintech Competition 10. Together with the Shenzhen OFDS, we will organize a fintech competition that is open to participation by Shenzhen and Hong Kong financial institutions. It offers total prizes of more than $ million for the winning fintech products or solutions. I am sure the awards will provide a strong incentive for financial institutions to innovate, either by themselves or in partnership with fintech firms.