its holding company, or one in accordance with whose instructions the
directors of an institution or of its holding company are accustomed to
act. Any controller, whether he becomes so before or after commencement
of the Bill, will have to seek the Commissioner's approval before
continuing to give directions or instructions to the institution.
Restriction on loans
The fourth area relates to lending by authorized institutions,
which is already subject to restrictions under the present Ordinances. The
Bill broadens the scope of the restrictions, principally to tackle those
cases where exposures to a number of different legal persons all depend
on the creditworthiness of a single party. Exploitation of this loophole in
the present restrictions has been at the root of many of the problems of
institutions which have recently experienced difficulties.
The Bill provides that the Commissioner may issue directions to
authorized institutions not to engage in specified business practices
which, in his opinion, may cause the soundness of the financial position of
an authorized institution to be dependent upon the soundness of the
financial position of a single party. The Commissioner will have power to
require the institutions to supply him with information to ascertain
whether his directions have been complied with.
As an example of what is envisaged, the Commissioner may issue
directions on lending to nominee companies. Pursuant to such directions, if
a bank has extended loans to a nominee company, the Commissioner may
require the bank to identify to him (confidentially, of course) the
beneficial owner of that company, to determine whether the bank is
over-exposed to that owner's creditworthiness. If the bank fails to satisfy
the Commissioner, he may require full provisions against those loans.