HONG KONG:
BANKING REFORM
Hong Kong is a laissez-faire economy par excellence.
There
is a minimum of controls over economic and financial activities and it
is this almost absolute freedom, exploited to the maximum by the
energetic and resourceful Chinese population, from which Hong Kong
derives its dynamism. In the financial field, however, the absence
of any but minimal controls, combined with inadequate institutional
arrangements, has led to excesses inimical to the health of the
economy. The most spectacular example was the recent and unprecedented
stock exchange boom. Although this resulted from several causes, not
least from the obsessive gambling instinct of the local inhabitants,
certainly lack of adequate control over stock exchange and banking
operations were important contributory factors. The Hong Kong
Commissioner for Securities is drawing up legislation to regulate
dealing in securities. This note examines the banking situation.
Banking Legislation
Legislation covering banking activities is confined to the
Banking Ordinance, 1964, (as revised in 1967, 1968 and 1969). Under
it certain powers are given to a Commissioner of Banking, but these
relate basically to the protection of depositors and bank solvency and
do not extend to control of bank credit or other forms of market
regulation. The main powers cover the licensing of banks, minimum
capital requirements, the creation of reserves, bank inspection, the
provision of returns by banks of assets and liabilities, restrictions on advances to certain classes of persons (e.g. directors, employees) and
the imposition of a liquidity requirement equal to 25% of deposits.
Some (e.g. licensing of banks) are exercised by the Governor-in-Council
and others in conjunction with the Financial Secretary, but this is unimportant in relation to the totality of powers available.
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