6.
1.
8.
This loss in turn had implications for the amount of capital available to the bank to support the risks on its balance sheet. Capital is needed by a bank to absorb losses and the Banking Ordinance requires banks to hold a mininum ratio of capital to assets (the "capital adequacy ratio") of at least 8%. In the case of BCCHK, the minimum ratio had been set at 11%. The 1990 losses brought the ratio below that percentage (though it remained above 8%). The position was restored in the las: week of June 1991 by the injection of $125mm of capital by the Abu Dhabi shareholders in the form of a subordinated loan. At that point, therefore, the bank met all the requirements of the Banking Ordina ice in terms of capital adequacy and liquidity.
The other main preoccupation of my office ahead of the restructuring was to try to ensure, so far as possible, that BCCHK was protected against any financial difficulties that might arise in the rest of the BCC Group. A part..cular concern was that the 1990 accounts for the BCC Group had been delayed. To this end, my Office urged BOCCHK to hold a large amount of liquidity (i.e. assets which could be realised quickly to meet a withdrawal of cleposits). It also pressed the bank to reduce its lending to other parts of the BCC Group. Consequently, such lending by BCCHK (other than to its own deposit-taling subsidiary in Hong Kong, BCCIFI) fell from $757n at end-1989 to $175mn at end-1990 and to only $4mn at end-June 1991.
In other words, ahead of the current crisis the efforts of my office had been directed towards trying to ensure that:
(1) the assets of the bank were realistically
valled;
(ii)
it had sufficient capital and liquidity;
(iii)
its exposure to the rest of the BCC Group was limited.
The events leading up to the crisis
9.
The current crisis in the BCC Group arose very suddenly. My representative, Mr John Aspden, was called at short notice to a meeting of the College of Supervisors in London. He was not told at that stage what the meeting was about. The meeting was held on Tuesday, 2 July and the details were communicated to me by Mr Aspden later that night (Hong Kong time).
The
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