In his weekly Viewpoint column published here Thursday, Yam said it is sometimes necessary for HKMA, the de facto central bankof Hong Kong, to use public money to restore confidence in the financial system, although controversial.
He said the local money market has been orderly despite heightened concerns about credit risk in the interbank market and HKMA is ready to provide liquidity to the banking system as neededand there is a well-established and transparent framework for doing so.
Yam said the United States had no choice but to bail out banks as the alternative of letting the markets take care of the problems might lead to a financial meltdown that would throw the economy into a tailspin, which would be a lot more costly to the community as a whole.
He said it takes time, and possibly severe pain, for stakeholders in a free-market economy to realize and accept the inevitability of market intervention in special circumstances and the use of public money to rescue the financial system.
"To contain or end a financial crisis there is a need for the authorities to provide liquidity to the financial system and facilitate the re-capitalization of financial institutions," Yam said, adding the provision of liquidity is obviously the role of the central banks, since they are lenders of last resort.
He hoped the U.S. Congress can reach a consensus on the comprehensive measures proposed by the U.S. government to repair the balance sheet of the financial system soon.