16. This support was crucial because depositors and other counterparties of the bank would only be reassured if they felt that the bank had firm backing and that new capital would be injected into the bank should that prove necessary. The credit-worthiness of a bank in these circumstances is dependent on its shareholders. The support of the Abu Dhabi Government was therefore vital for BCCHK's survival. But I realised that it would be necessary to have that reaffirmed.
17. The injection of capital by the shareholders needs to be distinguished from the provision of support in the form of liquidi:y. "The latter involves the borrowing of short-term funds from a third party such as another commercial bank, usually on a secured basis. Liquidity support does no: amount to a guarantee that a bank's liabilities will be repaid in full. It provides temporary assistance to a bank which is suffering an outflow of deposits, but the bank simply exchanges one form of liability for another. Moreover, banks and other institutions will not provide such assistance for Long, even on a secured basis, to a banking subsidiary such as BCCHK which :s no longer seen to have the support of its majority shareholders and which must survive purely on the basis of the capital on its own balance sheet. This was particularly so in BCCHK's case, given the financial crisis in the rest of the BCC Group, which might be thought to pose a threat to BCCHK's business.
18. The alternative was to order the bank not to open for business on Saturday, 6 July. This had the advantage that it would prevent an outflow of deposits from the bank and enable it to conserve its liquid assets. But
t would severely damage confidence in the bank and disrupt its business, and would make it very difficult for the bank to be re-opened without provoking a serious run on deposits. I believe that a decision to close the doors of the bank at this stage would have been widely criticised as being premature. Further, it might have provcked legal action from both shareholders and depositors cn the grounds that my action was unreasonable.
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19. The action available to both shareholders and
ċepositors would have been to apply to the Courts in Hong Kong to judicially review my decision in order to set it aside and for an order to re-open the bank's doors, perhaps as early as Monday. The shareholders or depositors could have argued that on Saturday, 6 July, the shareholders' Let:er of Comfort and therefore their
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