Eddie Yue: Developing Asia’s infrastructure to sustain economic growth Statement by Mr Eddie Yue, Deputy Chief Executive of the Hong Kong Monetary Authority, and Head of Delegation, Hong Kong, for the 48th Asian Development Bank Annual Meeting, Baku, Azerbaijan,4-5 May 2015. *  *  *  I would like to thank the Government of Azerbaijan for hosting the 48th Annual Meeting of the Asian Development Bank (ADB), and the Management and staff of ADB for the excellent arrangements of the event. I would also like to express my deepest condolences to the people of Nepal affected by the recent earthquake. Global economic growth has been modest and uneven since the last Annual Meeting. While developing economies including those in Asia remain an important source of global growth, there are signs that activities are slowing and potential outputs are falling. Despite substantial progress, developing Asia still faces significant development challenges. In particular, a number of developing economies have been held back by infrastructure bottlenecks. To sustain economic growth and fully realise their growth potential, substantial infrastructure investment is needed. Developing Asia’s infrastructure development needs dwarf existing official development assistance, government and private investments combined. To fill this huge infrastructure financing gap, we need bold, new efforts. In this regard, we welcome the combination of Asian Development Fund (ADF) resources with the ADB’s ordinary capital resources. The merger will allow ADB to make more efficient use of its existing resources and substantially expand its financial capacity by up to 50% according to ADB’s estimates.

The fact that, last summer, most banks came out with information on their positions in the sub-prime market only hesitantly, providing an incomplete picture, has made a significant contribution to the uncertainty in the interbank market. Consequently, we are reiterating our request that banks do a better job in making information available on their existing risks. In order to promote market discipline, it must be possible for outsiders to be able to assess a bank's resilience under both normal and stress conditions. Second, recent events highlight the limitations of risk-weighted capital adequacy requirements. The problems in risk management have made it clear that the modelling of bank risks will always remain imperfect. In interpreting capital adequacy requirements which are based on such risk models, we must therefore proceed with appropriate caution. This is particularly relevant in view of the new capital adequacy requirements that will also be introduced in Switzerland next year. The main change under these requirements, known as Basel II, is that capital adequacy requirements will rely more heavily on banks' own risk assessments. Bearing this in mind, the lesson learned last summer may well have come at the right time. This now begs the question as to whether – in addition to the complex, riskweighted capital adequacy requirements – other criteria, such as volume limits or the simple debt-equity ratio should not also be considered. The reason for this is that the higher this ratio, the greater the leverage effect of losses on the soundness of a bank.