Towards A Stronger Financial System

In a speech entitled "Towards A Stronger Financial System" delivered at today's (29 October) Hong Kong Society of Accountants' Annual Dinner 1999, Mr Joseph Yam, Chief Executive of the Hong Kong Monetary Authority (HKMA), called for the building of a stronger financial system as Hong Kong and the region recover from the recent financial crisis.

Noting that Hong Kong was now steadily recovering from a painful, eighteen-month recession, Mr Yam pointed out that the financial policies pursued by the Government had helped Hong Kong pass through the period of crisis with minimal damage to its monetary and financial systems. He added that currency stability, under the linked exchanged rate system, was also forcing the structural adjustments necessary to maintain and improve Hong Kong's competitiveness.

"We need to ensure that we come out of the crisis stronger rather than weaker. We need to identify structural defects, if any, and address ways of correcting them, not necessarily limiting ourselves to our own systems, given the globalisation of financial markets," said Mr. Yam.

Mr Yam identified the areas to be considered for the building of a stronger financial system as: prudent management of the international financial architecture, international reform in financial disclosure and regulation, and regional monetary co-operation.

On the domestic front, Mr Yam said that small open markets need to make greater efforts to strengthen domestic monetary and financial systems. Using illustrations from Hong Kong's experience, Mr Yam highlighted four requirements in this approach: maintaining substantial resources to cushion domestic systems against the impact of volatile short-term capital flows; a more pro-active role by regulators in market development to anticipate and pre-empt systemic problems; a higher degree of co-operation among different domestic regulators; and tighter rules for the markets.

Mr. Yam said that self-fortification would probably continue to be a prominent policy feature in the management of the monetary and financial systems of small open markets. "This is the reason why we in Hong Kong have been pressing ahead with many domestic reform initiatives to strengthen our monetary and financial systems," he said.

Hong Kong Monetary Authority

29 October 1999