At the heart of such thinking must be the view that the banking system exists to provide financial intermediation in support of the larger economy: it cannot be some abstracted, disembodied realm of activity in which intermediaries compete with each other to dream up ever more complicated ways of making a fast profit. But such thinking should not rule out innovation, as long as the objectives are clear: and the main objectives should be to serve activities in the greater economy, to increase the efficiency of the financial system without sacrificing its safety. This leads to my fourth and final observation. We have many examples of such innovation in Hong Kong to draw upon, but there is one that is particularly appropriate on this evening of reminiscences. I refer to the introduction of renminbi business into banks in Hong Kong – a development which seemed revolutionary at the time, but which now seems a very normal activity. It had small beginnings and is a gradual, cautious process: there is, of course, scope for much further growth and development. This innovation has clear practical uses in facilitating economic relations between Hong Kong and the Mainland, in reinforcing Hong Kong's role as an international financial centre, and in supporting the liberalisation of China's financial system. How many of us here, I wonder, recall that the idea of developing renminbi business in Hong Kong was first broached in 2001, during one of the Annual HKAB visits to the Mainland which I had the privilege of joining?
Quite apart from our own Hong Kong-specific initiatives, there are movements for reform at the international level, resulting from a very different experience in the more developed economies, which we cannot ignore. This point brings me to my second observation: the need to move with the times. The past year has seen a plethora of ideas and proposals for reforming financial regulations, and interventions by government that were unprecedented in their nature and scale. Even in economies less deeply affected by the latest crisis, including Hong Kong, it has been necessary to deepen government involvement, for example in more extensive deposit guarantees or in more intense supervision of banks' risk management – although it is gratifying that so many of the tools that we have been able to rely on, including the apparatus and contingency arrangements for ensuring liquidity, have been developed in a pre-emptive rather than a reactive way. On the various emergency measures, I am quite sure that in the fullness of time, these will either be turned into standing arrangements or withdrawn, hopefully through smooth exit strategies. But, current sentiment is clearly demanding much closer regulation and supervision of banks over the longer term. Quite what form this will take remains to be agreed on in international forums, although the thinking already seems to be towards improvements in the level and quality of banks' capital; new global standards for measuring, managing and supervising liquidity risk; and macro-prudential supervision to reduce the pro-cyclical dynamics of financial markets.