called central banking, is not a body established by law. the legal entity is the monetary authority, as a person, appointed by the financial secretary to assist him in the performance of his duties under the exchange fund ordinance. i have the honour of being the person who has been so appointed. that means i am accountable to the financial secretary for my actions when exercising the authority delegated to me by the financial secretary under the exchange fund ordinance. the financial secretary is advised by the efac appointed by the chief executive of the hksar, whose authority has been delegated to the financial secretary. 27. it is through the financial secretary that the monetary authority is accountable to third parties, and the form this takes is determined by the financial secretary. if the financial secretary wants me to appear before the legislative council and formally present a report to the council every six months, as suggested by some, i am quite happy to do so. but the financial secretary must of course make an assessment of whether the implications of such a practice are acceptable. he must take a view on whether this would introduce an avenue for political interference in the work of the hkma, in particular in monetary management. he must also take a view on whether this would undermine the effectiveness of the relationship between the administration, in particular himself, and the hkma. 28. insofar as getting things done at the technical level is concerned, for example in achieving the broad policy objectives of monetary and banking stability, and the development of the financial infrastructure, the existing relationship between the administration and the hkma has worked well. the hong kong dollar exchange rate has remained very stable and the banking system robust, and hong kong now has one of the most sophisticated financial infrastructures in the world. 29. it is of course up to the administration to consider whether, for political reasons, the unusual arrangements for the appointment of the monetary authority and the framework defining his accountability should be looked at. but it should be remembered that those unusual arrangements had the agreement of the legislative council as recently as late 1992 when it approved the required amendments to the exchange fund ordinance. admittedly, the details of the amendments then reflected expediency dictated by political considerations at the time. but the arrangements have worked well for hong kong. 30. the administration may feel that there is a need for the existing arrangements to be replaced by a separate ordinance establishing an institution called the hkma, having its own board and clearly defined functions. this appears sensible and is at least

having to be fundamentally restructured. it provides a useful and credible basis for improving bank practice today and allowing for future improvements - which could include actual modifications to the framework. we consider this vitally important because banking will remain a highly dynamic industry. supervisors will have to be especially attentive to changing best practices and ensure that basel ii does not inhibit adoption of new banking practices and financial instruments. conclusion maintaining financial stability in global banking and financial markets continues to be an important objective of regulators, bankers, and other market participants, particularly because of the negative impact that financial instability has on economies as a whole. basel ii, in my view, will help improve financial stability. the new framework will enable bank regulatory capital ratios to be more responsive to changes in risk and will foster additional disclosures by banks about their risk - measurement and management systems. and even though minimum regulatory capital ratios are likely to be more volatile under basel ii, this reflects greater risk sensitivity. perhaps most important, basel ii will encourage banks to develop their systems to measure and manage risk as part of the investment needed to support strategic initiatives. the greater volatility in measured risk, coupled with strategic capital planning, should encourage bankers to continue to maintain actual capital levels above regulatory minimums. in the united states, we are working very hard on basel ii implementation and are taking the appropriate, measured steps to ensure that we get it right. i expect that those in other basel member countries are doing the same, and facing similar challenges. of course, certain non - group of ten countries are looking to see if adapting basel ii is the best choice for them in the near term. for all of us engaged in basel ii work, it is helpful to remember that certain prerequisites have to be met particularly for the advanced approaches - including the development of qualified and experienced staff to oversee banks'adoption of the new framework.