It had an impact on the UK through a number of different channels – global financial markets, the financial health of our banks and other financial institutions, world trade and economic activity, and through business and consumer confidence. Because the shock was much bigger than earlier shocks the MPC had faced, the  BIS central bankers’ speeches  5  policy response was more dramatic, featuring deep cuts in interest rates and direct injections of money into the economy through Quantitative Easing. In my view, this was entirely right and appropriate given the risks of a deepening recession and deflationary pressures. Chart 4 Strong emerging market growth to continue Annual percentage growth rates of real GDP 10  Advanced Economies *  8  Emerging & Developing Economies *  6 4 2 0 -2 -4 1990  1992  1994  1996  1998  2000  2002  2004  2006  2008  2010  2012  *: 2011 and 2012 growth rates are IMF forecasts. Source: IMF World Economic Outlook  However, the trends in the global economy have now turned around. As Chart 4 shows, global growth in both the advanced economies and emerging and developing market economies – dominated by Asia – has recovered to rates very similar to our experience before the recession. And the upward pressure on global energy and commodity prices we saw before the recession have resumed.
In economies across the world, new issuance of corporate debt and listing of new companies came to a halt, posing an enormous challenge for the banking channel to sustain economic activities: as we have seen, in many cases that challenge was insurmountable. At the same time, the financial crisis grew to such exceptional proportions that governments worldwide had to implement a series of rescue measures of a kind never seen before, using public money to bail out the banking system. In a globalised world, it would be complacent to say that Hong Kong will continue to be less affected than their counterparts in Europe and the US: it is likely that the falling prices of financial assets, the economic downturn and other unfavourable factors will inevitably affect banks' asset quality and drive up the ratio of nonperforming loans. Nevertheless, it is also true that Hong Kong has entered this crisis in a position of strength and should be able to weather it relatively well. Despite the complex and stressful financial environment, the fundamentals of the banking sector in Hong Kong has remained strong and sound. The local banking sector here is well capitalised, at 13.8%, with a strong liquidity position averaging 45% in the fourth quarter of last year. The asset quality of retail banks is also high by historical standards, with preliminary figures showing overall non-performing loan ratio edging marginally from below 1% before the global financial crisis to just above 1% at the end of 2008.