| Abstract | Derivatives play a vital role in enabling risks to be hedged. Whilst they add to the liquidity and efficency of financial markets, they have potential to adversely affect banking stability. From the supervisor's point of view, financial institutions must have adequate systems in place to ensure prudent risk management. Supervisors must also ensure that these institutions' management is fulfilling properly its control responsibilities and that there is sufficient capital in place to support the risks. In this article, the Deputy Chief Executive of the Hong Kong Monetary Authority provides a banking supervisor's perspective on the implications of derivatives trading for the banking system. |
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