in the global financial crisis, may not necessarily contribute to better risk management of banks and overall financial stability. recognizing this inherent risk, the hkma, in seeking to nurture the universal banking model in hong kong, must continue with its long standing conservative supervisory approach with even greater emphasis on prudence under - pinned by proactive and forward looking supervision. 20. ladies and gentlemen, this is a rather long speech and i thank you for your kind attention. thank you! bis central bankers ’ speeches

of international banks to leverage on the capital of their parents would limit their lending in many emerging market economies. this may in turn have negative impact on the trade, investment and other economic activities of these emerging market economies. besides, liquidity management would likely be more efficient for a branch than for a subsidiary as funds can flow more freely within the same legal entity. on resolution, it is true that the insolvency proceedings for a subsidiary would normally be simpler than for a branch, but in practice there could be many complications such as : linkages to other group entities through intragroup guarantees and exposures, service reliance and shared management, to name but a few issues, which would affect the ultimate resolvability of a subsidiary when it actually happens. 15. after the global financial crisis, the subsidiarisation model has actually gained greater support in some jurisdictions. this is because some home supervisors of internationally active banks feel that it might be easier for these international banks to undertake “ de - risking ” operations should trouble occur in overseas subsidiaries than in branches. 16. from hong kong ’ s perspective, we believe that subsidiaries and branches of overseas banks can and do play different roles in servicing the real economy. the hkma bis central bankers ’ speeches takes the view that an overseas bank that wishes to undertake retail business in hong kong should operate in the form of a locally incorporated subsidiary. this is to offer appropriate protection to the retail depositors in hong kong and to do that the hkma needs to have an effective supervisory handle on every aspect of a retail bank ’ s operation, especially its capital adequacy ratio. we cannot achieve this if the bank operates as a branch in hong kong. 17. however, we also recognise that subsidiaries may not necessarily be an efficient model of operation if an overseas bank intends to undertake only corporate or private banking in hong kong. for example, a branch can leverage on the capital of the entire bank to finance a loan for a large corporate, which would otherwise be impossible if it operated as a subsidiary with rather limited capital in hong kong. likewise, some private banking clients may prefer to deal with or book their investments with a branch of an overseas private bank rather than a subsidiary of that bank. so the hkma keeps an open mind on whether an overseas bank operating in hong kong should take the form of a subsidiary or a branch. it all depends on the business model of the bank concerned. to take it one step further, we are prepared to