APR 09 '86 16:38 GIS HK
P.5
panic.
Insider dealing is always a threat for share prices are also sensitive. Let me, therefore, by way of illustration turn back to 1983 to indicate why a relatively small banking collapse could well affect directly or indirectly the exchange value of the Hong Kong currency. It is my judgement, which is fairly widely shared, that if the Government had not rescued Hang Lung Bank at that time, not only could other banks have collapsed as the ripples spread (which is an ever present consideration) but other important sectors of the economy would also have been set at total risk. Moreover such problems might not have been contained within Hong Kong and we have to have regard for our international responsibilities. In my view in the circumstances at that time not only would the currency have been affected but it
Whatever the would probably have collapsed altogether. arguments of critics who cannot know the full facts of the situation, this would seem to me to be an absurd risk to take when it could be avoided quite simply by the prudent use of adequate reserves. The man in the street has been protected throughout. An alternative scenario would have
Members presented a very different and dangerous picture. will recall that similar arguments have been advanced elsewhere in the case of Johnson Mathey Bank and Continental Illinois. If Ka Wah Bank had collapsed last summer at the same time as OTB there would undoubtedly have been a serious domino effect on other small banks and the interbank system. This would certainly have had a serious effect on the Hong Kong dollar.
I would then have
been attacked for not intervening. There is clear evidence in other financial centres of the high risk of bank failures engendering serious and wide ranging difficulties throughout the financial sector.
12.
If a system of deposit insurance existed in Hong Kong the problems might be somewhat mitigated, though not removed. Inter-bank deposits are an important issue.
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