I would like to underline that as the Central Bank, we will closely monitor the lagged effects of our policy measures on price stability and financial stability, and will take additional measures if deemed necessary. In assessing risk factors and related monetary policy measures under current circumstances, we adopt a framework where both price stability and financial stability are taken into account. Therefore, risk factors are not only assessed with respect to their impact on the level but also on the composition of the aggregate demand. This is because the level of aggregate demand is related to price stability, while its composition relates directly to financial stability. Therefore, we evaluate risk factors regarding the global economy against this backdrop. Although downside risks regarding the global economy have decreased compared to the previous reporting period, they still remain significant. Problems in credit, real estate and labor markets in many advanced economies are yet to be completely solved. Moreover, uncertainties regarding debt sustainability and the impact of a possible fiscal consolidation persist. Meanwhile, rapid increases in oil prices may restrain global recovery. All these factors continue to feed downside risks regarding the pace of global growth. The possibility of prolonged period of slow global growth not only poses downside risks regarding external demand, but also keeps prospects for strong capital flows to Turkey vigorous. Should such a scenario materialize, a policy mix of low policy rate, high reserve requirement ratios and a wide interest rate corridor may be implemented for a long period.

While I believe these measures would be welcomed by the private banks and their clients as they offer greater convenience and flexibility, I must remind everybody that the core objective of our regulatory framework continues to be investor protection. So private banks must ensure that they have in place the necessary systems and internal controls to implement the portfolio based approach and other related measures to facilitate the investment process. BIS central bankers’ speeches  3  In this regard, it is hard to overstate the importance for private banks to have proper documentation. Proper documentation helps bank management monitor staff’s sales practices and detect deficiencies. Proper documentation also provides audit trail and evidence on the sales process. A bank with proper documentation will be in a much better position to demonstrate that it has properly discharged its duties to its clients in the event of a dispute or complaint. Enhancing competency of industry practitioners Let me move to another pillar that is necessary to support the continued success of Hong Kong’s private banking industry: namely the availability of professional talents. Institutions can only be as strong as the people that make them up. How the world perceives the standard of our financial services depends crucially on the quality of the people delivering such services. Private banking clients now demand quality and efficient services that are tailored to their specific investment needs. Meanwhile, the financial markets have become more complex and volatile.