being required or strongly encouraged to wear masks and gloves for their own protection and to limit the spread of the disease. the banks have also activated back - up sites for critical operational areas such as computer systems, dealing and settlement. teams of staff that could man these operations in an emergency have been identified and have been segregated in locations outside the main office such as the back - up site or other branches. some staff have also been working from home. in some cases, arrangements have been made with overseas branches to cover at least part of the activities of the hong kong operations in case of need. the number of overseas trips and meetings has been cut back. so far these special arrangements seem to have been effective. banks have been able to maintain their operations without major disruption, except for the temporary closure of a few branches. hopefully, it will be possible to wind down the arrangements in the near future. no doubt lessons have been learned from the experience that can be incorporated in the banks ’ contingency plans. apart from the need for banks to avoid interruptions to their business, they are also having to cope with the impact of sars on the volume of their business and on their balance sheets. based on our discussions with the banks, the main effects have so far been as follows : • customer traffic in the branches has been reduced, which is limiting face - to - face contact with the customer and thus hampering efforts to sell wealth management products. the positive side is that use of internet banking is up, which provides the opportunity for banks to reach out to customers in a cost - effective way. while the potential of the internet was undoubtedly over - hyped during the tech boom, it is increasingly demonstrating its value as an alternative delivery channel. • loan demand has fallen further from its already low levels. in particular, demand for mortgage loans has dropped, which is not surprising since buying, or even viewing, new flats has not been uppermost in people ’ s minds in recent weeks. • credit card volume is down as people cut back on retail spending, restaurants, entertainment and travel. there are indications from some banks however that the amount of credit card spending may be beginning to pick up as people begin to venture out again. • asset quality may suffer if businesses go bust and more individuals become unemployed. smes in the most badly affected sectors of the economy, credit cards and mortgage loans are potential areas of vulnerability. so far there has been little sign of significant deterioration in these areas.

jeanne ( 2002 ) argue one should think of this aspect in terms of an insurance. see issing ( 2002 ). see borio and lowe ( 2002 ) and borio, english and filardo ( 2003 ). see blinder ( 1999 ). “ new environment ” hypothesis in the following. the reasons suggested are that for quite some time inflationary pressure might not show up in inflation itself, due to a ) low pricing power of firms, b ) positive supply side developments and c ) well anchored low inflation expectations. it has been argued that central banks ’ focus on ( consumer ) price stability is insufficient and financial imbalances would have to be addressed directly. this direct response could consist of two parts. it would first involve trying to avoid ( or at least subdue ) the building up process of financial imbalances and second - if the former was unsuccessful ( or insufficient ) - to smooth the adverse consequences when imbalances are being unwound. policy implications i have at previous occasions already stated my doubts that price stability should be added to the list of causes triggering financial instability. i do not deny the fact that financial fragility can be significant in times of low inflation. but the latter statement that low inflation is not a sufficient condition for financial stability and the former that low inflation causes financial instability, are worlds apart. here i would like to focus on two particular aspects, which is the trade - off question with respect to the “ new environment ” hypothesis and the related relevance of the problems associated with identifying asset price bubbles. in the spirit of tinbergen if the central bank has one policy instrument, i. e. monetary policy, it can only achieve one independent goal, which is price stability. an intuitive division of labour is to assign the objective of financial stability to a financial regulatory authority, which sets up a prudential supervisory framework. this regulatory authority can but must not be the central bank. in this scenario with two authorities following one objective each, none of the authorities would be subject to a policy trade - off, as the number of instruments matches the number of objectives. nevertheless this reasoning cannot be used to exclude all conflict situations. in practice central banks ’ responsibilities concerning financial stability vary a lot. for example, no general financial stability objective can be derived from the treaty or the statute of the ecb. nevertheless the ecb has the task to contribute to policies pursued by the competent authorities relating to the stability of the financial system [ art. 105 (