Hong Kong's International Financial Centre: Retrospect and Prospect

to defend their interests in its continuation. But officials like it too, for they live in a political but
also bureaucratic environment that rewards blame-shifting when things go wrong and
infrequently and inadequately rewards decisiveness when things go right. To stop the process of
de-segmentation entirely would be difficult, costly, and arguably unwise. The resulting
dilemmas are inherent in contemporary capitalism, where most financial structures incline
toward openness and integration, while most political structures remain confined and local.
Such gaps and overlaps became only too obvious during the Lehman mini-bonds incident.
The biggest gap was a global one, and beyond the capacity of Hong Kong alone to fix. The
decision to let Lehman fail was made by US authorities, who were not fully aware of what the
legal, political, and economic fallout would be abroad. 67
It was, however, the regulatory
overlaps and confusion that quickly became clear after the Lehman bankruptcy, and here is the
terrain where near-term reform seems most likely within Hong Kong. In short, the mandates of
the HKMA and the SFC need to be clarified. Before looking in detail at that issue, however, a
couple of other items need to be put on the table.
In contrast to a number of other jurisdictions that share the same basic regulatory model,
the role of the HKMA with regard to the banking sector stands out. Although hardly unique, the
fact that bank supervision and monetary policy are located under one institutional roof is
noteworthy. A similar situation exists in Singapore and elsewhere in Asia, but in the United
States, the United Kingdom, Canada, Germany, Japan, and many other places, including, as just
noted, China, the central bank retains a deep interest in banking matters but defers to separately
mandated institutions for detailed supervision. After the crisis of 2008, it is true that the central
banks in those latter jurisdictions were more assertive in trying to expand their domains. But
there is less here than meets the eye, and that is what is relevant to post-crisis debates over
structural reform in Hong Kong.
Comparing systems
Before 1997, the UK did combine monetary policy and bank supervision in the Bank of
England. With the dividing line between bank lending and securities underwriting already
becoming more difficult to see, the government of Tony Blair and Gordon Brown carved out
from the Bank detailed responsibility for bank supervision, combined it with responsibility for
the supervision of functionally similar firms in the securities markets, and gave the full mandate
to a new Financial Services Authority (FSA). Because monetary policy continued to be
implemented through the banking system and responsibility for ‘monetary stability’ was left to
the Bank of England, the move was controversial from the outset. But it was hardly
unprecedented. Many of the UK’s European partners maintained one or more separate agencies
for financial supervision.
67 For a detailed account, see Andrew Ross Sorkin, Too Big to Fail, New York: Viking, 2009.
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