which switched with much acclaim to the market paradigm during the past decade or so. another example of the ascendancy of market - based economics can, i would argue, be found in the realms of corporate governance. at times during the 1970s and 1980s, when the so - called anglo - saxon model of relatively unbridled financial markets was not delivering particularly good results in terms of economic growth, there was some envy of what one might depict as the institutional model of corporate ownership, as evident in germany and japan for example. in this model much of the equity of major businesses is closely held by friendly groups of long - term investors including one ’ s bankers and associate companies. it has been argued that this arrangement provides the best environment for long - term growth and stability, in contrast to the situation where businesses are exposed fully to the cut and thrust of the stock markets, which are characterised as being populated by people seeking only short - term profit and ever alert to opportunities for takeovers, asset stripping and the like. but experience of the 1990s does not support that view. germany and japan have been the laggards of the decade. the true cost to japan of the longstanding cosy relationships between banks, industrial corporations and government ministries has become apparent. and we watch in some amazement the reaction among some sections of the political and business communities in germany to the vodafone / mannesmann takeover battle an almost unprecedented ( for germany ) hostile bid, no more palatable for being from abroad - along with the government ’ s efforts to save the holzmann construction group, not to mention the authorities ’ stout defence of the largely state - owned domestic regional banking network there. thus, the more open and aggressive equity market environment of the anglo - saxon model seems to have delivered ultimately the fitter economy. but we should remember that the stock market doesn ’ t serve everyone who is looking for equity finance. there is a large population of smaller and mediumsized businesses which cannot aspire to access the market. nevertheless they are important contributors to the economy and need equity funding. few, if any, economies have been able to match the usa when it comes to enterprise culture and the relatively abundant sources of funding available to smes. even in hong kong, where we pride ourselves as being highly market - oriented and enterprising, we cannot claim that life is a bed of roses for smes. but i am encouraged by the launch of the growth enterprise market - the stock exchange ’ s

clients. the ( a ) professionalism and integrity of the financial institutions and the practitioners are crucial in earning the confidence and trust of their customers. without such trust, the prospects of hong kong as an ifc are doomed. financial firms should avoid getting carried away in boom times. motivated by big and growing profits and bonuses, many financial firms are minded to undertake very rapid ( b ) expansion without building the necessary risk management capability. excessive risk taking or overly aggressive expansion usually lead to rather unhappy endings, as the financial history is littered with so many such failure cases. as for the regulators, they should stay true to the risk - based approach with the right sense of proportionality and should adopt an open mind on how the risk can be addressed. the regulators should stand ready to discuss with the industry to see if ( c ) there can be alternative ways of dealing with the risks identified. the industry is always closer to the markets and the clients they serve and should therefore have a better sense of how to get things done in a way that would cause less disruption or inconvenience. the regulators must not fall into the trap of complacency, and should constantly stay on alert and maintain a sense of unease even in good or peaceful times. banking and ( d ) financial crises can never be avoided all together, but we can at least build sufficient buffers to lower their chance of occurrence or when they happen, the damage can be reduced or contained. the industry should stand ready to challenge the regulators if the severity of the risk is overstated or there are better alternatives than what has been put on the table. on the ( e ) other hand, the industry must avoid over - interpreting or gold plating the regulators ’ requirements in such a way that is safe from the compliance point of view but would create bad customer experience without enhancing the underlying risk management outcomes. 16. all in all, the financial industry should seek to collaborate with the regulators, more as partners than as adversaries, in developing risk management framework and practices that are most suited for hong kong ’ s circumstances and needs. there is no one - size - fits - all solution for risk management and hong kong must find its own path to success by learning from the best practices elsewhere and by striving to upgrade on a continuous basis. finally, may i wish all of you a fruitful and productive time in today ’ s treasury markets summit! thank you. 4 / 4 bis central bankers'speeches