Joseph Yam: Banking sector risks and challenges Luncheon talk by Mr Joseph Yam, Chief Executive of the Hong Kong Monetary Authority, at the Hong Kong Institute of Bankers, Hong Kong, 16 June 2004. *  *  *  The turnaround Thank you for inviting me to talk to you today. It is a pleasure to be here and I am delighted to see such an enthusiastic attendance. I was recently looking over past speeches (not, let me assure you, with the aim of recycling them), and I noted that the last time I spoke at one of the Institute’s lunches was on 24 October 2001. This has prompted me to reflect on how much we have all been through over the past 32 months - both as a financial community and in the larger community. When I last spoke to you the world was just six weeks on from the 9-11 attacks. There was a strong sense that we were heading for difficult times, with a worsening global environment, and with deepening deflation, unemployment, a budget deficit, falling asset prices and a rising number of negative equity mortgages within Hong Kong. Conditions were likely to get worse before they got better, I concluded. Well, after a period of great difficulty, in which things got considerably worse than I think any of us had imagined, conditions are now at last improving. Since around the middle of last year Hong Kong has been enjoying a strong and broadening recovery.
Time is limited, and this is, after all, a luncheon speech, so I shall not go into detail about these standards. The point to make here is that, as an international financial centre, we have no alternative but to implement these standards as fully as we possibly can and as soon as international agreements have been reached on them. Many of these standards will be, to put it mildly, quite onerous. In this connection, I wish to ensure you all that the HKMA has been adopting a proactive approach in participating in the relevant international standard setting forums and in influencing the standard setting processes in the best interests of Hong Kong. We have also consulted widely in Hong Kong. Insofar as the banks are concerned, there is a clear need for bank management to allocate adequate resources to the process of implementation, which will involve substantial changes to IT systems and compliance arrangements. For Basle II, for example, banks should not be acting under the misapprehension that they can simply sub-contract the implementation processes to third party service vendors, such as their external auditors. Active involvement of bank management is crucial in ensuring that most, if not all of these international standards are properly incorporated into the daily operations of banks, especially since each bank may face different focuses and challenges in the process.