convenience of a one - stop service, ranging from simple products such as equities, unit trusts, insurance, gold etc. to the more complex derivative or structured products that meet their investment needs. at the same time, universal banking also allows some banks, if they have the resources and expertise, to provide corporate or investment banking services to the more sophisticated corporate clients in a wide range of areas such as debt finance, equity fund raising, mergers and acquisitions and other advisory services. 5. universal banking also makes a great deal of sense from a bank ’ s point of view. under this model, a bank will be able to better serve the diverse needs of its customers, and generate fee and commission income which is not subject to the same kind of credit, maturity and other risks associated with income derived from lending and trading activities. bis central bankers ’ speeches customers need the services and banks provide them : it does look like a perfect match, doesn ’ t it? as always, perfection rarely exists in the real world and there is a catch inherent in this one - stop financial supermarket model. this is related to the different ways in which customers perceive a bank as a deposit - taking institution versus a brokerage house or investment bank. 6. because of the easy access and convenience universal banks offer, they tend to attract customers along a very wide spectrum of financial sophistication and risk appetite. some of these customers go to banks to conduct very basic banking transactions, such as cash withdrawal, rolling over fixed deposits, remittances, applications for loans, getting cheque books and credit cards etc. as universal banks seek to expand fee and commission income in distributing investment products, there may be a risk that some banks or their frontline staff could become overly keen to market products to customers without sufficient regard to the customers ’ own circumstances. closer to home, the lehman minibonds episode has reminded us of the need for banks to take great care in the marketing and distribution of investment products to customers. it is for this reason that some have argued that the banking industry should revert to a simpler model of basic banking and leave the rest to brokerage houses and financial advisors. 7. the global financial crisis and the subsequent international debate have prompted us to reflect on whether universal banking still remains an optimal model of banking for hong kong. our answer is “ yes ”. but, this is a qualified “ yes ” because we believe that banks must take two appropriate steps to address the potential concerns that i

that particular approaches be adopted by particular types of banks - is, we feel, the most appropriate approach for hong kong. in hong kong we have a wide variety of banks, rlbs and dtcs. we have different nationalities. we have different sizes. we have banks that focus on the retail market, and ones that focus on the wholesale market. we have banks that specialise in mortgage lending, ones that specialise in sme lending, and ones that are jacks of all trades. it ’ s perfectly appropriate, therefore, that with such a wide variety of banks there should be a wide variety of credit risk management and other risk management practices. the real point is whether, given the bank ’ s particular circumstances, the risk management practices they adopt are adequate. and that, primarily, is a matter for the bank ’ s management to determine, although we will of course, given our statutory responsibilities, also have an interest in this. i stress these points for three particular reasons. first, because i don ’ t want anyone to think that we are against banks taking risk. we ’ re not. that ’ s the business they ’ re in. we simply want to make sure they recognise and manage the risk effectively. second, because i want to make clear that we are not hell bent on driving banks to invest in unnecessarily sophisticated risk management systems. what ’ s appropriate will clearly vary from bank to bank, depending on the nature and scale of their business and the risks they run. third, because i want to be perfectly clear that basel ii is not some underhand means of making life difficult for smaller banks by raising the hurdle too high in terms of what they need to spend on risk management and on regulatory compliance. indeed, on the contrary, the whole thing is carefully designed so as to accommodate banks of all shapes and sizes. so, how will basel ii change banking in hong kong? the answer, i would suggest, is that we won ’ t see any dramatic changes overnight, but we will over time see some re - focusing of how the risks within banks are addressed, both by banks themselves and by the supervisors. this will be more in the nature of a gradual evolution than a “ big bang ”. there are really two main strands. the first will be a more systematic identification of risk, and covering a wider range of risks. the second will be the increased use of quantitative techniques, including modelling and stress - testing. let me talk a little