Norman T L Chan: How to get rid of banking supervisors Keynote speech by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary Authority, at the Lion Rock Institute Freedom Dinner, Hong Kong, 22 November 2017. * * * Nick (Sallnow-Smith), founders, directors and members of the Lion Rock Institute, Daniel (Hannan), ladies and gentlemen, 1. It gives me great pleasure in joining you today. 2. After accepting the Institute’s invitation conveyed by Peter Wong, I thought hard about what to talk about in front of such a learned and distinguished audience that support and cherish economic freedom. I was also mindful that I should come up with an inviting title that helps sell the tables. I hope I have achieved this, at least by attracting a few more senior bankers to help foot the dinner bill. 3. Nowadays a common theme that bankers often talk about when they meet each other is how their lives have become so much tougher, thanks to ever more stringent standards demanded by regulators and supervisors. Not only are banks required to hold a lot more capital as well as liquidity to meet unexpected contingencies, there is constantly increasing demand by the supervisors to deal with conduct risks. Everyone is familiar with the escalating compliance burden and pressure on banks in tackling anti-money laundering, counter-terrorist financing, international sanctions, mis-selling, etc., not to mention the hefty financial penalties slapped on banks for violations or breaches.
The private sector of the economy should continue to heal, while the amount of fiscal drag should subside. I also expect that, despite the near-term concerns, growth prospects among our major trading partners will improve next year. And this combination of events is likely to create an environment in which business investment spending will strengthen. However, the notion that the economy will grow more swiftly remains a forecast rather than a reality at this point. Turning to the inflation outlook, total inflation, as measured by the personal consumption expenditures (PCE) deflator, has fluctuated recently with short-term movements in energy prices, but it continues to run below the FOMC’s expressed goal of 2 percent. Core inflation, that is, excluding food and energy, slowed in late 2012 and early 2013 to well below 2 percent, although it has shown signs of stabilizing in the last couple of months. A decomposition of core inflation reveals that the most recent slowing of inflation has been largely confined to core goods, whereas the rate of increase of core services has been relatively steady. Such was not the case in 2010 – the previous instance of a significant slowing of inflation. In addition, inflation expectations so far have remained relatively stable at levels somewhat above the current inflation rate. This should help prevent an undesirable further drop in inflation relative to our 2 percent objective. Thus, I anticipate that inflation will firm further in the months ahead and move toward the FOMC’s longer-run objective.