Yam reflects on roots of crisis

Stepping away from the current predilection for debate over the way forward, Joseph Yam, the chief executive of the Hong Kong Monetary Authority, highlighted four issues observed over the length of his career that played a role in the origins of the ongoing financial crisis.

He argued that a conflict exists between the private interest of financial intermediaries to maximise profits in the short run, and public interest of sound financial intermediation. He acknowledged that such a thing would be easier said than done, but there was no straightforward response to this conflict, other than for financial intermediaries to be constantly mindful of their responsibility as protectors of the public interest.

Yam's second concern was the dilemma faced by emerging markets between protecting financial stability and seeking more openness. He reasoned that the prospect of financial openness should ultimately trump fears of instability, so long as the risks involved are carefully managed.

On the third issue of the reality in finance, he said that textbook-perfect markets exist rarely, if at all. He stressed the consequent need for those in charge of monetary and fiscal health to accept the inherently imperfect nature of the system, and called for them to be endowed with the necessary emergency powers to act swiftly and independently of political machinations.

He argued finally that governing authorities are insufficiently involved in the development of financial infrastructure. Comparing the benefits of financial infrastructure to the public good derived from physical infrastructure, he asserted that the resources devoted to the provision of the former were disproportionate to the pressing need for strong fundamentals in finance.

The comments were part of his welcome address to the Swift International Banking Operations Seminar in Hong Kong on 14 September.

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