norman t l chan : responding to the financial crisis – financial reform impacts and regulatory regime changes opening remarks by mr norman t l chan, chief executive of hong kong monetary authority, at the asian financial forum 2010, policy dialogue : “ responding to the financial crisis – financial reform impacts and regulatory regime changes ”, hong kong, 20 january 2010. * * * 1. “ it has often been said that history, especially financial crisis, tends to repeat itself. notwithstanding the disturbingly frequent occurrence of seemingly similar financial crises, i am inclined to believe that history does not repeat itself because, upon close scrutiny, no two crises are exactly the same. it may be more correct to say that mistakes will be punished by the market. if people do not learn from their mistakes, then the market will continue to repeat its punishment. the only difference between the major financial crises is that the punishment is getting more and more severe, if not violent. ” 2. “ going forward, i can see two possible ways to learn more about the financial markets. one is to learn from past mistakes and do something now. the second is to wait until the next disaster strikes and try to do something there and then. given what we have experienced in the last two years, it is my hope that the international community will see the wisdom of not waiting for the next crisis to learn how we can make the international financial system a more robust and safe one for all of us. ” 3. ladies and gentlemen, i made the above remarks over 10 years ago, in june 1999. it was ten months after the asian financial crisis hit hong kong, which was then followed by the turbulence of the global financial system as a result of the abrupt collapse of the ltcm. it was rather unfortunate that the fear i expressed in 1999 has come true ten years later. the international community has failed to learn the lessons from the asian financial crisis and the ltcm debacle and to make the financial system more robust and safer. as a result, we have been punished, and punished very, very severely. the latest financial tsunami, dubbed as “ once in a century ”, has demonstrated that somehow all the key safety valves and gatekeepers have failed functioning properly to prevent excessive leverage and risktaking within the financial system, leading to very heavy fiscal and social costs in the subsequent bail - outs. 4. now the international community, led by g20, is trying very hard to draw lessons from this latest financial crisis. i sense that there is

money. its annual growth rate has increased moderately over recent months. it appears that the turning point in credit growth is now behind us, and credit growth rates, while remaining negative, are gradually improving. monetary policy and financial fragmentation let me turn to financial fragmentation, the first topic you suggested for today ’ s hearing. fragmentation in various segments of the financial market has been a major obstacle to the smooth conduct and transmission of monetary policy, and ultimately to our ability to deliver bis central bankers ’ speeches on our mandate. also owing to determined actions the ecb has taken, fragmentation has receded significantly since the height of the financial crisis. unsecured money market rates are trading again at reasonable spreads over their secured counterparts. sovereign bond spreads in the euro area decreased significantly from their peaks in 2012. together, these developments reflect the gradual return of confidence among investors in the euro area. yet, we still face a situation where our very accommodative monetary policy stance does not sufficiently reach some final borrowers in the euro area. this is because credit markets in some parts of the euro area are still impaired and show only timid signs of recovery. as a result, credit growth continues to contract and credit conditions – while having eased recently – remain overall tight from a historical perspective. importantly, costs of bank funding have improved, but are still relatively high in some member states. where they are lower, they are not passed on in full to the real economy. the monetary policy measures decided in june and september this year, the targeted longer - term refinancing operations and the purchase programmes for asset - backed securities and covered bonds, are designed to overcome these obstacles. they will enhance the transmission of monetary policy, support the provision of credit to the euro area economy and, as a result, provide further monetary policy accommodation. we see early indications that our credit easing package is delivering tangible benefits. since the beginning of june, forward money market rates have shown steep declines across the maturity spectrum. now, the forward curve consistently lies below zero over a two - year horizon. eonia is not expected to exceed 25bps before well into 2018. the 3 - month euribor rate, which is an important conduit of monetary policy impulses to lending rates, dropped to all - time lows and now stands close to zero. and the policy decisions, in particular those announced in september, triggered a compression of spreads across other asset classes, including abs, covered bonds and sovereign bonds. but