9 / 8 / 2017 remarks at the bank of china sydney branch's 75th anniversary celebration dinner | speeches | rba speech remarks at the bank of china sydney branch's 75th anniversary celebration dinner philip lowe governor sydney – 8 september 2017 [ acknowledgement of special guests and hosts ] it is an honour to be here this evening to celebrate the 75th anniversary of the opening of the bank of china's first branch in australia. on behalf of the reserve bank of australia, i would like to pass on our warmest congratulations. the story of how the bank of china came to establish a branch in australia in 1942 is a story of resilience and friendship. over recent weeks i have had the opportunity to read about this story through the yellowed pages of the reserve bank's archives. when conflict came to singapore in 1942, mr parkane hwang from the bank of china's singapore branch decamped to what was then known as batavia. from there, he sought a visa to travel to australia to establish a branch of the bank of china in sydney. it must have been a difficult and stressful time. true to australia's welcoming nature, especially to those in need, the visa was granted. by midyear, the branch was in operation, with mr hwang's deputy from the singapore branch, mr s. c. lu, as its representative. in those days it was quicker to get a banking licence than it is today! it is clear from our archives that the granting of this licence was a significant sign of friendship by australia towards china. it was very unusual at the time to grant such licences. upon the licence being granted, one of my predecessors as governor – governor h. t. armitage of the commonwealth bank of australia, which at the time carried out central banking functions – wrote to mr lu to congratulate the bank of china on the new branch. i would like to read from that letter, as 75 years later i could not have put it better myself. governor armitage wrote : http : / / www. rba. gov. au / speeches / 2017 / sp - gov - 2017 - 09 - 08. html 1 / 3 9 / 8 / 2017 remarks at the bank of china sydney branch's 75th anniversary celebration dinner | speeches | rba ‘ i feel sure that the entry of your bank into the australian banking system will not only be of inestimable value in facilitating business relationships between china and australia

of reserves. investors must be confident that banks are establishing sufficient levels of reserves and recognizing loan impairment in a timely fashion. compliance with sound accounting, disclosure, and reserving standards not only protects safety and soundness, but also gives the world ’ s investment community confidence in its analysis of risk exposure from investing in various countries and companies. the absence of such confidence, on the other hand, may lead investors to overreact to adverse financial events in such countries by ceasing investment, immediately withdrawing current investment funds and demanding a high return for any remaining or renegotiated investment in such countries. today ’ s technology and global financial markets enable investors to take these actions very quickly with dramatic consequences, as has recently happened in some asian countries. another issue related to the efficient operation of market forces is that government intervention in the credit and investment decisions of banks distorts market discipline and pricing. such programs frequently cause banks to make less than arm ’ s - length investments in, and loans to, non - economic government - affiliated projects or to individuals associated with such projects. once these loans are made, it is difficult for national supervisors to demand that banks apply prudent reserve and charge - off policies, let alone foreclose on such loans. in addressing governmental interference with market forces at their meeting in london in february, representatives of the g - 7 countries unanimously supported the international monetary fund ’ s requirement that countries receiving imf funds make structural reforms to reduce inappropriate government interference in the market economy. the message that governments should heed is that, ultimately, market forces will come to bear with severe results if firms or nations are artificially protected from market forces. iii. sound capital as a risk - absorbing buffer my third major theme today - - the importance of adequate capital - - has drawn much attention in the past decade as a result of the basle accord. the idea is pretty simple : if we want banks to be prudent in their risk - taking, there is no substitute for requiring banks ’ owners to have their own money at risk. with that requirement, supervisory interests and banks ’ private interests are more closely aligned and banks have fewer incentives to take excessive risks. when banks ’ managers and directors assess the riskiness and profitability of prospective business opportunities, they will weigh heavily the potential effect of new business activities on their banks ’ capital positions. capital must be sufficient, but “ how much capital is enough? ” the answer is linked, of course, to the level