Hong Kong's financial system continues to be robust, but there is no place for complacency.
When the financial system is functioning normally, not many of us give much thought to how things would be if it were not. Indeed, other than those responsible for promoting monetary and financial stability, there is not much need for the community to do so. And I am glad that this seems to be the case currently. There is no difficulty for creditworthy individuals or corporations to obtain access to funding, whether for the purpose of purchasing a home, meeting day-to-day cash-flow requirements, or expanding a business through a share listing. This can be done on unusually favourable terms too, with interest rates at historically low levels. For those with surplus funds, the banking system of Hong Kong is among the safest in the world. And for those with a higher risk appetite, the dynamism of Hong Kong, as the international financial centre of fast-developing China, provides attractive investment opportunities compared with the rest of the world.
But it is another story in the United States and parts of Europe, where the financial systems continue to be under considerable stress, threatening to send their economies into one of the deepest recessions for many decades. Before the moves by the authorities to virtually underwrite the financial system, those with surplus funds were worried about the safety of their savings and, even with the extensive involvement of the authorities in the financial system, credit remains scarce and expensive. With house prices continuing to fall and job opportunities dwindling, many people are finding it increasingly difficult to service their mortgages or sustain their household expenses. Indeed, credit tightness and economic downturn are reinforcing each other in some economies in a dangerous spiral that the authorities are finding hard to stem.
The normal functioning of financial intermediation through the financial system is very important to the economy, the general well-being of the community, to jobs, and many other things that our daily lives depend on, even though it is very difficult to articulate its significance accurately in layman’s terms. And in this age of globalisation, problems that affect the normal functioning of financial intermediation in one place can easily spread to another. I sincerely hope that the situation in the United States will improve soon, with the financial system quickly returning to normal to support economic activities. The US authorities are making tremendous efforts. I know how difficult it can be, having dealt with a number of severe financial crises before. But the key people who are working hard on it are knowledgeable and professional. I have met many of them at international meetings over the years, and I have full confidence in them. But sometimes political or other considerations constrain the freedom of the authorities to deal with issues quickly: problems sometimes have to deteriorate into crises before there is enough will to deal with them decisively.
Monetary and financial stability in Hong Kong cannot be taken for granted. We are highly externally oriented and therefore susceptible to external shocks. With the global economy in one of the worst recessions we have seen for many years, the impact on Hong Kong will be severe. Our markets are free and open, and therefore more vulnerable to volatility than others. But our monetary and financial systems are robust, ranking very high internationally. The stress tests that we have been conducting for the banking system have confirmed this, although we now have to factor in the possibility of an outbreak of H1N1 Influenza. We also have well-established contingency arrangements to support the systems if necessary. We will continue to do our best to safeguard stability and I hope we have the continued support of the community in this complex and challenging task.
Joseph Yam
14 May 2009
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