No one can say that they were sure how these innovations would shape things to come, and some of us, understandably, were just hoping they would go away so that we could get back to business as usual. Financial markets don’t really like surprises, and the idea that disruption is a good thing was a bit unfamiliar to many. 14. Over time, it has become apparent that these innovations, in particular the technologies and business innovation underpinning them, are here to stay and will naturally develop in a healthy financial system like Hong Kong’s. They have the potential to improve efficiencies, reduce intermediary cost and promote innovation. 15. Digital innovations encompass a wide spectrum of products and services beyond the commonly-known crypto-currencies. DeFi, given its composability feature, can inspire innovation in finance. Take tokenised green bonds as an example. We concept-tested the idea with the BIS Innovation Hub last year and are adopting it for an actual issuance  later this year. When both bond and cash are tokenised and brought on-chain, all bond lifecycle events like asset servicing, trading and redemption can happen more efficiently in a distributed manner. It could even make possible real-time tracking of the green impact. 16. In addition to traditional financial assets, the blockchain technology also allows fractionalisation of asset ownership in art, real estate or other assets, creating new forms of financial intermediation. With radical open-mindedness, we can use technological innovations to make financial markets more complete and bring benefits for the real world. 17.

However, one should not overlook the fact that the single bank resolution mechanism has the advantage of increasing the speed and credibility in addressing banking crises (especially cross-border failures). As regards the single deposit guarantee scheme, the underlying idea is that a larger pool of resources reinforces confidence in the banking system. A caveat is worth mentioning, however: in times of extreme financial stress, the size of potential liabilities may undermine the credibility of the mechanism. Even if this pillar is less urgent than the others, steps in this direction have already been taken. Specifically, the coverage of the national deposit guarantee schemes has been harmonised at the level of EUR 100,000/depositor/institution and measures to simplify protected deposit repayments have been adopted in terms of faster payouts and improved financing. This single protection scheme is designed to ensure an equal treatment of depositors across EU countries, in complementarity with the Single Supervisory Mechanism. From the perspective of non-euro countries, there are some potential negative consequences stemming from the establishment of the banking union in the euro area, which need to be assessed. First of all, the failure to join the banking union could lead to possible changes in the domestic banking structure. Parent banks may decide to turn their subsidiaries into branches. This would be reflected by (i) additional fragmentation of financial sectors across the region, (ii) low availability of information to host-country regulators and supervisors, and (iii) lower capacity at institution and group levels to respond to domestic and regional developments.