13
avoid this "donino effect" and other similar threats to the currency, the Exchange Fund could be used, for example, to take the bank over and discharge its liabilities. Careful consideration was given to the use of the Fun in the case of BCCHK but the assessment of the Financial Secretary as controller of the Exchange Fund was that BCCHK's problems did not pose a sufficient risk to the value of the currency to satisfy the statutory criteria for the strategic use of the Fund.
34. The Financial Secretary does have further statutory
powers to manage the assets which make up of the Exchange Fund. In the course of managing those assets he can permit the Fund to place deposits with a licensed bank on normal commercial terms. This could have the effec: of providing temporary liquidity support of the kind referred to in paragraph 17 above and needs to be distinguished from a "rescue" of the bank by means of an injection of new capital or by taking the banl: over as described in the previous paragraph.
35. It is important: to rote that no commitment was given to
the public that: the Exchange Fund would be used to rescue the banl:. The press release issued by my office on the evening of Friday, 5 July stated that the Exchange Fund had "indicated its willingness to place funds with BCCHK, should this prove necessary, on normal commercial terms", This referred clearly to the provision of 1:quidity, not capital, support. In practice, there was no need for the Exchange Fund to place deposits with BCCHK on Saturday, 6 July, firstly because there was not a significant outflow of deposits, and secondly because a secured line of credit had been provided on normal commercial terms by BCCHK's clearing bank on that day. (Only $200mn of this was drawn to enable BCCHK to obtain additional cash for its branches on Mor day; this was not in the event required.) The withdrawal of financial support by the Government of Abu Dhabi would have subsequently made it commercially in prudent for the Exchange Fund to place funds with BCCFK.
36. The final decision as to whether the bank should open or close its doors was taken at 7:00 am on Monday, 8 July at a meeting in my office. Those present were members of my staff, the advisers I had appointed from Price Waterhouse and the HongkongBank and the general manager of BCCHK. The meeting had before it two versions of a press notice to be released that morning,
1:
ST'3 S660 SP8 258
(ESNOH IN09) 301330 SWWOO
22:81 60-80-166T
14