norman t l chan : how to get rid of banking supervisors keynote speech by mr norman t l chan, chief executive of the hong kong monetary authority, at the lion rock institute freedom dinner, hong kong, 22 november 2017. * * * nick ( sallnow - smith ), founders, directors and members of the lion rock institute, daniel ( hannan ), ladies and gentlemen, 1. it gives me great pleasure in joining you today. 2. after accepting the institute ’ s invitation conveyed by peter wong, i thought hard about what to talk about in front of such a learned and distinguished audience that support and cherish economic freedom. i was also mindful that i should come up with an inviting title that helps sell the tables. i hope i have achieved this, at least by attracting a few more senior bankers to help foot the dinner bill. 3. nowadays a common theme that bankers often talk about when they meet each other is how their lives have become so much tougher, thanks to ever more stringent standards demanded by regulators and supervisors. not only are banks required to hold a lot more capital as well as liquidity to meet unexpected contingencies, there is constantly increasing demand by the supervisors to deal with conduct risks. everyone is familiar with the escalating compliance burden and pressure on banks in tackling anti - money laundering, counter - terrorist financing, international sanctions, mis - selling, etc., not to mention the hefty financial penalties slapped on banks for violations or breaches. so it is natural and indeed understandable that bankers harbour grievances and misgivings towards bank regulation and supervisors. and this is why the topic i am going to talk about is a very attractive theme to them. they would like to hear from a supervisor speaking on a subject that they can normally only discuss privately amongst themselves. 4. first of all, let me give you the good news! as i see it, there are two ways to get rid of bank supervisors, one fast track and the other a slow track. let me start with the fast track! 5. if you can find a clock or time machine that would allow you to dial back time to 100 years or so ago, then you would find yourself in a happy world where there was little or even no banking supervision. contrary to common belief, banking supervision as a profession or industry ( or, as some bankers would no doubt have it, a “ black art ” ) does not have a very long history

to broaden our universe of eligible agency bonds, because our aim is not to become the largest creditor on the euro area. second, our programme is creating portfolio rebalancing effects as investors are displaced across asset classes – affecting risk preferences – and across jurisdictions – affecting the exchange rate. this process has multiple transmission channels to real economy but one key one is through banks : on the liability side, portfolio rebalancing reduces the cost of market debt for banks, and on the asset side, it increases the opportunity cost of holding henceforth still risk - free securities, such as government bonds, over extending loans to the real economy. third, asset purchases have a strong signalling effect. they send a powerful signal that we will not allow price stability to be jeopardized, which helps re - anchor inflation expectations and lower real interest rates. and they also signal that liquidity will keep expanding, which supports a flattening of the term structure and further supports the easing of real interest rates and the exchange rate. the effectiveness of these signalling effects is predicated on the implementation of our programme in full, as we have communicated – that is, we will maintain the pace and volume of our intervention until we see a sustained return of inflation towards a level below, but close to, 2 % over the medium - term. in all these ways, our asset purchase programme therefore represents a continuation and extension of our existing measures – it reinforces our credit easing and more generally the bank lending channel. in this sense, i share the view that “ quantitative easing ” is something of a misnomer. to be sure, the quantity dimension of large - scale asset purchases matters, but only insofar as it affects prices and hence credit conditions. at the same time, we have to clearly distinguish instruments and objectives. in extraordinary circumstances we may need new instruments to meet our traditional objective. but what anchors trust in the central bank is that our objective and strategy stay, constant – and this is even more important when monetary policy becomes more unconventional. for this reason, innovative ideas to change our strategy, such as targeting a price level, would in fact be counterproductive in the current environment. out goes also the misguided idea to increase our definition of price stability. to paraphrase a well - known quote, when the facts change, we might need to change our instruments – but we do not change our mission. managing the side effects in terms of reaching our objective, our package