banks and supervisors further. the bank, having a keen interest in sound corporate governance has therefore adopted the internationally accepted basel committee ’ s guiding principles of good corporate governance in its admission requirements for local and international banks and its corporate governance guidance notes for the supervisory boards of supervised financial institutions by choosing for a two - tier board model consisting of a managing board and a supervisory board. this despite the fact that our general law on companies permits a one - tier board. ( which will be elaborated later upon by mrs. hammoud and mrs. de windt ). according to the bank, an institution's supervisory board is ultimately responsible for the conduct and affairs of the supervised institution. it is the supervisory board ’ s duty to oversee management affairs and to monitor the institution's direction and, hence, its adherence to its overall policy. by doing this, the supervisory board determines how the institution will conduct its business in the long term. in general, the supervisory board establishes or approves and monitors the policies by which management will operate. the supervisory board should set the “ tone at the top ” and oversee management ’ s role in fostering and maintaining a sound corporate and risk culture. in favorable times the supervisory board contributes by setting the tone and direction, it oversees and supports management ’ s efforts by testing and probing their recommendations before approving them. the supervisory board should also ensure that adequate systems and controls are in place to identify and address problems before they become a threat for the viability of the institution. in adverse times the supervisory board should be even more actively involved with the institution assisting it with the undertaking of the necessary corrective actions and, when needed, to keep the institution on track until effective management can be reestablished. the supervisory board is considered therefore by the bank as an extension of its supervision within the regulated entities because well - governed banks contribute to an efficient and cost - effective supervisory process which permits the bank to place more reliance on the bank ’ s internal processes which may result in less need for supervisory intervention. in this respect we consider communication as key for an adequate supervision of the institutions supervised by the bank. therefore, we applaud the contribution of laad in its communication towards the bank by having annual presentations of laad ’ s results, where a representative of the managing board is always present to explain the results and developments in the markets. the bank furthermore welcomes periodic exchange of information between the bank and the supervisory board of laad ( for example on the strategy,

joseph yam, jp : the hong kong monetary authority ’ s main initiatives in the area of banking supervision speech by mr joseph yam, jp, chief executive of the hong kong monetary authority ( hkma ), at a lunch with representatives of the finance constituency organised by dr david li, held in hong kong on 15 january 2001. the speech outlines the latest state of play on the hkma ’ s current initiatives in the area of banking supervision, as well as responding to some points raised by dr li on behalf of the finance constituency. * * * 1. i would like to thank david li for arranging today ’ s lunch with representatives of the finance constituency. the number of live issues in the realm of bank supervision, some of which have been set down in david ’ s letter in advance of this lunch, is currently quite considerable, so it is useful to have this opportunity to get together to exchange views. as you will know, it is very much our style to work in close collaboration with the banking industry on developing our policies rather than to adopt a confrontational approach, and long may this continue. 2. let me run through what i see as the hkma ’ s main initiatives in the bank supervision area in the next twelve months, in the course of which i will try to pick up some of the points made in david ’ s letter. i see there being three main initiatives, namely : 1. deposit protection ; 2. deregulation and other market reforms ; and 3. the credit reference agency. 3. on deposit protection, we are now coming to the end of the consultation period on the consultants report – in fact there are just two days left, so if you want to make a submission, you will have to hurry! once we have collected in everyone ’ s comments we will carefully review them and determine whether to recommend going ahead with such a scheme and, if so, exactly how it should be structured. as you will be very aware, the views of the banks on this issue are mixed, whereas legco has given a clear endorsement, and most other parties are also in favour. but, assuming we do go ahead, this is really only the beginning, and there will be a lot of work to be done on the design features. for example, should coverage of the scheme be limited to $ 100, 000, or should it be $ 200, 000? should funding be ex - ante or ex - post? should premiums be risk - based?