CONFIDENTIAL
Take, by way of simple example, the burden of last resort facility. This is not normally a function of a commercial bank: but in so far as anyone in Hong Kong offers such a facility, it is the Hong Kong Bank. It sets its own terms; and can in principle break a bank and buy it up at a knock down price. This is not to say that even the Hong Kong Bank would in practice act with such crudity; but it is an un- comfortable power to have around. It is not, of course, a power which need unduly worry branches of major international Banks which can call on other resources; but this leads in turn to questions relating to the criteria in Hong Kong for the establishment of overseas
Banks.
Here, in short, is another layer of this problem which is unlikely to respond (without probably unaccept- able ructions) to an imposed "solution", however sensible it may be and however much in UK interests of Hong Kong it may be. When the balance of financial power is so grotesquely tilted as it is in Hong Kong, it can probably only be redressed gradually; and pro- bably only with the co-operation of the Hong Kong Bank as well as that of the Government.
But this is running ahead of the game. I suggest that we should seek to exploit this re-opening of the dialogue with the Bank of England to try to move beyond descriptions of problems towards an identifica- tion of what the feasible first steps might be along what will inevitably be a difficult road. I doubt whether this homework will be a waste of time, whatever other initiatives may turn out to be desirable. the end, it will be some combination of political muscle and financial expertise which will move this mountain.
In
16 August, 1974
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Mr. Wilford (or) Mr. Male Mr. Stuart
DAN
D.G. Holland
CONFIDENTIAL
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