6
noteworthy that the eventual request in January 1973 for voluntary
restraint was not also addressed to finance houses, over which the
Banking Commissioner has no jurisdiction at all. In April of this
year it was common talk in Hong Kong that following the Banking
Commissioner's request some banks had been directing customers to
their finance house subsidiaries.
The advances made for stock exchange operations appear to
have taken place through the normal process of local credit creation and not by drawing down external assets, in particular sterling. Indeed the banking system as a whole could not use sterling to
increase lending as the market in sterling is between the banks
themselves and the only possible buyer of sterling would be the
Hong Kong government who would not have sufficient Hong Kong dollars
for the purpose.
:
Although between end-September 1972 and end-March 1973 the banks' sterling holdings fell by approximately £144 mn., £139 mn. of this was accounted for by the Hongkong Bank, who, in agreement with the Financial Secretary, had been drawing down sterling partly to support the Hong Kong dollar rate in the market and also in order to sell
sterling to the Bank of China whose offtake has recently been in the region of £40-£50 mn. a month.
A further repercussion of the stock exchange speculation was that in the absence of local paper and an official buyer of last resort there were enormous and very disrupting changes in bank liquidity at times of most new issues, which, as already mentioned,
were frequently oversubscribed several hundred times. The situation
arose basically because for many new issues the Hongkong Bank were bankers to the issuers and the Banking Commissioner, in order to try to curb oversubscription, had requested that cheques for all share applications should be cleared whether the applicant was successful or Unsuccessful applicants greatly outnumbered the successful ones
not.