these were true, they still do not justify the extent of the meltdown of their currency and their financial system, and the distress they are in. but the brutal reality is that they are now in that position. markets panic and overshoot, and if we are not careful, we can easily be pushed into that situation. and the culprits would be the handful of hedge funds having little or no interest in hong kong, not to mention in our well being, other than it being a free market which they can manipulate and from which they can take money, somewhat like an atm machine, as others have put it. the hksar administration is run by people who have put hong kong on the map as the freest economy in the world. it is clear to us that there are, again quoting my great teacher sir philip, “ imperfections in the operation of the market mechanism ”, possibly leading to “ economic inefficiency ” and “ social distress ”. so the administration decided to intervene to deter currency manipulation, to get rid of the unnecessary and unfair pain that has been inflicted on the community as reflected in the currency manipulation interest rate premium, and to avoid market adjustments overshooting in panic into an uncontrollable tailspin. consistent with sir philip ’ s view that interventionism should be “ relevant to the maintenance of economic stability in hong kong ”, and with exchange fund advisory committee backing, financial secretary donald tsang yam - kuen made the order to intervene in the free play of market forces. there has been no departure from the long established policy of positive non - interventionism that has served hong kong so well in the past. those who think that we have so departed should try and refresh themselves of what this policy really means. and no one needs to take my word for it. those are the words of sir philip, the architect of that policy and someone who commanded and still commands a lot of respect. indeed as monetary authority chief, i have no responsibility over that policy. it rests on the broad shoulders of sir donald tsang who is carrying it bravely. let us all make a little effort to give him the support that he needs, spiritual or otherwise, by trying to gain a better appreciation of what the policy of positive non - interventionism really means. - 4whilst on the subject of intervention, may i reiterate that our intervention in the stock and futures market to deter currency manipulation does not imply any weakening of

reducing the federal funds rate. this means that we will need to allow our restrictive policy some further time to continue to do its work. i think we are in a good position to hold steady and closely watch how conditions evolve. i remain vigilant to the risks to achieving both components of our mandate. i believe that the current approach is a prudent way to manage those risks. evaluating risks is also fundamental to my other role as vice chair for supervision. in the same way that the public depends on monetary policy to support a healthy economy, the public also depends on a strong and stable financial system, so i would like a spend the remainder of my time discussing the prudential regulatory framework the fed uses to oversee banks and promote financial stability. conceptual framework underpinning our regulatory structure the prudential regulatory framework for the banking system is crucial to supporting an economy that works for everyone. as i have spoken about many times before, banks play a critical role in the economy in taking deposits and providing credit to households and businesses, but distress in the banking system can impose widespread costs on society. the government and taxpayers support the banking system through deposit insurance and other forms of government support. the system relies on banks having the capacity to remain resilient and continue lending to households and businesses through times of stress. - 3i will focus on three key components that underlie the resilience of the banking system : capital, liquidity, and resolution resources. each component plays a distinct role in fostering a safe and stable banking system by promoting the resilience of banks and limiting the impact of their distress or failure on the broader economy. the three elements work together : capital absorbs the impact of unanticipated losses ; liquidity enables a bank to meet funding withdrawals and provides time to right itself from a bout of stress ; and resolution resources facilitate an orderly wind down of a failing bank, which promotes financial stability and limits damage to the economy. capital is a core source of resilience, and common equity is the core of capital. common equity provides the greatest degree of loss absorbency, and it is the first line of defense against the risk of bank runs. sufficient capital makes a bank resilient both to cyclical economic downturns and unexpected shocks like we saw in march 2023. capital can absorb losses no matter the source, so it is an effective defense against a wide range of risks that banks face. we use different models to set capital