to see how well they have achieved their desired outcome. i would hope these plans provide clarity to a board or senior management in terms of where the central bank is coming from and can be part of a “ no surprises ” approach. thirdly, the prism framework includes an important role for risk governance panels. these are challenge and quality assurance forums, chaired by more senior supervisors and involving experienced risk advisers from industry or regulatory backgrounds. i ’ m pleased by how these are working, in terms of providing challenge to supervisory teams, both to be more robust in some cases, but also more proportionate and focused in others. it is, however, important that the central bank is prepared to fine tune and continuously improve our supervisory framework. part of this will mean a continuing investment in staff training and development : our staffing numbers have levelled off ( and indeed will be somewhat lower than we projected necessary a few years ago ), but we know we need to work harder to improve our understanding of business models, market developments and financial analysis, to balance out more established audit and compliance skill sets. we also plan to take stock of prism implementation before too long. good supervision involves a commitment to continuous improvement, keeping up with best practice supervisory techniques and also improving skills and industry knowledge in front line supervisors. the last few years has seen, i believe, a significant upgrading in supervisory approach and capability in ireland. as these are probably my final public remarks on the subject while at the central bank, i would like to comment that while the tide of regulation – that is rule - making – may naturally ebb and flow over the years, it is important to maintain a constant commitment to strong supervision. before i develop that thought, i think it is only appropriate that i recognise the big effort that most management teams and boards of directors have taken to step up and adapt to the significant changes that are happening internationally and here domestically. that ’ s not only the insurance industry – which has put in a lot of effort to prepare for solvency ii – but other firms in other sectors too who have, for example, implemented important strengthening of rules on corporate governance and fitness and probity, and who are now subject to more rigorous supervisory assessment. i recognise that this has involved a lot of work on the part of industry and for the most part we have been pleased by the engagement we see and by the improved standards of compliance that are resulting ; most firms ’ management and boards “ get it ” and realise that, post crisis

prudence, and a great credit to hong kong's banking system. we also seem to have achieved a good balance in the relationship between the supervisor and the banking system. an excellent example of how that balance has contributed to banking stability is the 70 % loan - to - value policy for residential mortgage lending by banks. this policy, now a cornerstone of our prudential arrangements, pre - dates even the foundation of the hkma and evolved out of a productive dialogue between hkab and the supervisor. it has survived strong political pressure for relaxation and market pressure for innovative credit risk transfer through securitisation. the policy – now nearly two decades old – fits in well with the macroprudential approach which, particularly in the light of the recent crisis, supervisors in other jurisdictions now consider to be essential to banking stability. the fact that no such policy existed in the advanced financial systems is remarkable enough. but what is more remarkable is the level of initiative of the hong kong banking sector itself in seeing the importance of systemic stability and giving it precedence over the profitability of individual institutions. we might therefore observe, in the light of this and of our experience over the past year, that hong kong has got it broadly right in the relationship between the supervisor and the banking system. however, this should not lead us to the complacent conclusion that there is nothing much that needs changing. and indeed, no such conclusion is in our minds. both the carse report and the recent reports to the financial secretary on the sale of lehmanrelated products see room for development and improvement in the way we carry out our work. quite apart from our own hong kong - specific initiatives, there are movements for reform at the international level, resulting from a very different experience in the more developed economies, which we cannot ignore. this point brings me to my second observation : the need to move with the times. the past year has seen a plethora of ideas and proposals for reforming financial regulations, and interventions by government that were unprecedented in their nature and scale. even in economies less deeply affected by the latest crisis, including hong kong, it has been necessary to deepen government involvement, for example in more extensive deposit guarantees or in more intense supervision of banks'risk management – although it is gratifying that so many of the tools that we have been able to rely on, including the apparatus and contingency arrangements for ensuring liquidity, have been developed in a pre - emptive rather than