This policy, now a cornerstone of our prudential arrangements, pre-dates even the foundation of the HKMA and evolved out of a productive dialogue between HKAB and the supervisor. It has survived strong political pressure for relaxation and market pressure for innovative credit risk transfer through securitisation. The policy – now nearly two decades old – fits in well with the macroprudential approach which, particularly in the light of the recent crisis, supervisors in other jurisdictions now consider to be essential to banking stability. The fact that no such policy existed in the advanced financial systems is remarkable enough. But what is more remarkable is the level of initiative of the Hong Kong banking sector itself in seeing the importance of systemic stability and giving it precedence over the profitability of individual institutions. We might therefore observe, in the light of this and of our experience over the past year, that Hong Kong has got it broadly right in the relationship between the supervisor and the banking system. However, this should not lead us to the complacent conclusion that there is nothing much that needs changing. And indeed, no such conclusion is in our minds. Both the  BIS Review 116/2009  1  Carse Report and the recent reports to the Financial Secretary on the Sale of Lehmanrelated products see room for development and improvement in the way we carry out our work.
I shall therefore simply offer a few reflections that I hope will be relevant to the banking profession in Hong Kong. The first observation is that Hong Kong has, so far, escaped the worst. We have not experienced a collapse of our financial system, or a nationalisation of our major banks, or other forms of government intervention that will burden taxpayers for many years to come. In fact, our banking system has been resilient throughout the crisis, and the measures taken early on to reinforce confidence and ensure liquidity were effective and at minimal cost to the public purse. This is not an observation to be made with any sense of gloating or complacency. We all recall the intense anxiety of those days, and many in our community have suffered losses as a result of mistakes and mismanagement in other financial systems. Nevertheless, our well-capitalised banks have been well prepared for shock. Crisis management, particularly when public confidence momentarily came under strain, was effective. The generally cautious approach of our bankers, your refusal to get carried away by innovation, helped minimise the damage: this is a vindication of your reputation for prudence, and a great credit to Hong Kong's banking system. We also seem to have achieved a good balance in the relationship between the supervisor and the banking system. An excellent example of how that balance has contributed to banking stability is the 70% loan-to-value policy for residential mortgage lending by banks.