For these reasons, I think the United States is unlikely to evolve in the direction of those countries that have pulled bank supervision out of the central bank and placed it with a consolidated supervisor of bank and non-bank financial institutions. A second distinguishing feature of the U.S. central bank relates to our monetary policy regime – our dual mandate for price stability and sustainable growth and how we define our price stability objective. In comparison with the growing number of central banks that have adopted formal inflation targeting regimes, the Congress has preserved the broader mandate – for employment and price stability – legislated in 1978. And the Fed has consciously chosen not to describe in quantitative terms how it defines price stability nor to set an explicit quantitative target for inflation over the medium term. And yet the actions of the Fed over the last 25 years have helped to produce a sustained period of low inflation, less variability in inflation, more stable inflation expectations, and a substantial reduction in output volatility. These are the best measures of credibility, and they look very good against the record of other central banks that now occupy the spectrum between the soft and flexible and pure and harder inflation targeters. This choice of regime is fundamentally a choice about how to achieve and sustain appropriate policy outcomes and how to preserve the capacity to make sensible monetary policy decisions in the face of shocks and uncertainty about structural shifts in the economy without compromising credibility.
There is a risk however that this would detract from the role of the lead bank and the financial advisers and reduce the impact of the contribution that the HKMA can make familiarity can breed contempt. The HKMA has been involved in about 10 cases since the HKAB Guidelines were issued. Typically these will involve situations where a small minority of banks, sometimes only one, are refusing to sign a restructuring agreement or are threatening to take action, such as realize security, which would cause the workout to collapse. Our practice in such cases is to listen to both sides and to understand their respective positions. Where a small number of banks are holding out against the majority view, we will ask them to explain their position and to weigh the costs of their behaviour against the potential benefits. Where the position of the minority banks seems to lack sound justification, we will usually try to persuade them to accept the majority view or at least make every effort to work towards a compromise. At the very least, we would request the banks to reach decisions on restructuring proposals within a reasonable period of time and try to adhere to the deadlines which are set for these decisions. The HKMA’s role in the workout process is, I believe, consistent with the Monetary Authority’s principal function under the Banking Ordinance, which is to “promote the general stability and effective working of the banking system”.