This is a clear example that, if not accompanied by credit risk management measures at the individual level and proper systemic prudential regulation and supervision, encouraging access to mortgage loans by formerly excluded sectors, a praiseworthy goal without a doubt, may end up substantially weakening the financial positions of not only the ones being intended to help in the first place but also the financial system at large. Inflation targeting and asset prices A corollary of those blaming monetary policy is that, apart from focusing on the variation of the prices of goods and services, it should also have asset prices in mind. Under inflation targeting regime, increased lending and asset prices can generate demand increases with repercussions on inflationary perspectives. This would require a monetary policy adjustment to prevent a persistent rise in inflation. Hence, in an inflation targeting  1  Interestingly and, according to Blinder and Reis (2005), using Taylor rules as from the first quarter of 1988, the residuals indicate that in all the mentioned episodes the Federal Reserve set the interest rates significantly below those prescribed by the rule. 2  There is evidence for the United States that securitization caused a relaxation of risk evaluation in the subprime segment and increased the rate of acceptance of mortgage applications (Loutskina and Strahan, 2006; Keys et al., 2009). BIS Review 68/2009  3  regime, asset prices and the level of credit aggregates affect the monetary policy decision to the extent that they affect the inflation perspectives (Bernanke and Gertler, 1999).
It is a non-statutory code, although compliance with it is expected of all AIs. It is monitored by the HKMA as part of its regular supervision, although, as I mentioned earlier, we have no formal, statutory mandate in this project. There is, I think, scope, as the Report advocates, for HKAB to take greater ownership of this code, particularly in the setting of standards – and in ensuring that these are high standards – and in monitoring and enforcing compliance. This would be consistent with the practice of banking associations in other jurisdictions, and it would be a logical development of HKAB’s role. A third area highlighted in the Consultant’s Report is consumer education in the field of banking services. This is a neglected subject in Hong Kong. The question of which organisation should take the lead in this is, of course, tied to the question of who should take on consumer protection. But, whatever the answer to the second question, it seems clear that HKAB would need to be involved in some form or another. This, in fact, reflects the practice among industry organisations in other jurisdictions, many of which have a strong tradition of producing plain-language factsheets, webpages and other resources on running personal finances, protecting one’s financial interests, and making the most of new forms of financial services. Moving away from the recommendations in the Consultant’s Report, there is, I think, a fourth area in which HKAB could become more involved. This is in the development of Hong Kong’s financial infrastructure.