But I have to confess that they will not be exciting to those who advocate quick fixes - and in particular to the small minority who believe that something more spectacular, such as depegging or repegging the Hong Kong dollar, is the panacea for all our problems. In the last part of this talk I shall devote some time to this question, which has received some attention in the past few weeks, with the aim of explaining why, in my view, tinkering with the Link is not a solution. Unstable times Let me first, however, offer some comments on the environment that we now find ourselves in. Internationally, prior to the tragic events of September 11th, there were already signs that a global slowdown was either imminent or already in progress, although it was not clear quite how long or how severe the slowdown would be. September 11th, and its aftermath, has not made the answers to these questions any clearer, but it has left no doubt that the deterioration will be sharper, or that the subsequent recovery will take longer. A number of factors in connection with September 11th are at play. Some have immediate effects that are to a certain extent quantifiable: the physical damage caused by the atrocity; the cost - in additional security and insurance, lost revenue, lost jobs - to the airline and tourist industries; the blow to markets worldwide.
With a deepening process of financial globalisation that we are now seeing, supervisors and central banks are faced with increased challenges to analyse and manage risks, especially in the context of more complex interlinks between financial institutions and financial markets, as well as between domestic and the global economies. In such an environment, the risk management ability of financial firms and supervisors is important and rests crucially on the ability to assess quantitatively and in a forward-looking manner, the possible impact of each risk scenario on the economy and its financial sector. In this light, a sound and practical approach to integrate the quantitative assessment into financial stability and into risk-based supervision is most crucial, as it will allow the potential key risk affecting the financial sector to be identified, to be assessed, and to be ranked in order of importance. Through this, the approach will help focus policy dialogue and facilitate communication between all the key stakeholders, namely – the supervised financial institutions, the home and host supervisors, other related supervisory agencies especially in the case of complex financial conglomerates, and between the monetary authority and the Finance Ministry. In moving forward, it is important to recognize that, while these quantitative techniques are valuable tools, they are no substitute for a thorough understanding of the overall risk dynamic of financial institutions, the related systemic implications, as well as the behaviour of institutions and markets.