for banks. i want to end with a few words on transparency. quite simply, there will in my view be more of it in the future. when i started in supervision in the late 1980s, we prohibited banks from disclosing their basel i capital ratios, and we got exercised when they did nonetheless bis central bankers ’ speeches declare their ratios. that was a relatively simple regime. the basel iii regime is undoubtedly more complex and it is not about the single capital ratio. capital requirements and buffers will vary between firms and over time, for good reasons. banks and investors do complain about the lack of clarity about their future requirements in this regime. but that precision is not realistic. within defined parameters the regime is designed so that buffers adjust in relation to risk and the impact of firm failure. counter cyclical buffers can be varied over time depending on conditions, and banks can move between gsib buffers as they change size and structure. likewise, supervisory work, including stress testing, can lead our judgement about appropriate buffers to change. the regime is built this way deliberately to include a greater element of judgement by supervisors. my view is that this will inevitably lead to more transparency and disclosure, which is fine and to be encouraged providing it can deliver useful guidance. that means we have to work hard to deliver as much clarity as is possible in an uncertain world. and finally, we know that there is change on many fronts, the scale of which may only be exceeded by the scale of the crisis to which it is a response. as supervisors we are on the look out for unintended consequences of this change, and we will assess and refine our approach as needed. thank you. bis central bankers ’ speeches

is called the monetary base. if you were to ask any representative grouping of the community, say, the legislative council, what the monetary base is, i would be surprised if more than ten per cent of the group could come up with the correct answer. many would be tempted to relate this to the various definitions of the money supply, because that is the term mostly heard in commentaries on money and finance. but they are quite different things. the crucial part of the monetary base and the money supply, however defined, are in fact on the different sides of the balance sheet of the banking system. put this question to a group of academics and you would probably, on the contrary, get as many definitions as there are people in that group. 15. this confusion is understandable and, at least partly, in the context of hong kong, a reflection of the rather peculiar institutional framework for monetary management of the past that is now, one hopes, history, with the ten years of reforms to our monetary system. you may be surprised to hear this. it was not until the end of 1996 that the monetary base for hong kong was properly defined. this was when, on the occasion of the introduction of real time gross settlement for interbank transactions, all licensed banks were required to operate a clearing account with the hkma instead of with a commercial bank. yet we have been, somehow, controlling, or we claimed to have been controlling, the monetary base ever since the linked exchange rate system was established in october 1983. 16. even assuming that the definition of the monetary base is well understood, there is then the important question of how it should be controlled. herein lies one of the most interesting subjects in monetary management and that is the choice between discretionary control with people making decisions, and automatic rule - based control with no discretionary decisions involved. associated with this are considerations concerning, and possibly another choice between, flexibility in management and the credibility of the monetary system. even the most professionally competent central banker can be wrong. a system that involves discretionary decisions is therefore subject to human errors of judgement that may undermine the credibility of the system, and some would go as far as to argue that this would eventually lead to failure of the system. on the other hand, an entirely rule - based system without any discretion is inflexible and may not serve the best interest of the community, even though short - term interests may sometimes be involved - witness the many calls for lowering interest rates even when