House Automated Transfer System (CHATS). The former deals with mainly periodic direct debits or credits on standing instructions and CHATS handles on-line transfers between the bank members of the system, usually in relation to money market trans- actions. Settlement by these systems is effected by transfers between the bank accounts of the 10 settle- ment banks and the Hongkong and Shanghai Banking Corporation Limited which also acts as the management bank for the Clearing House.
The Hongkong Bank is in turn required to keep on deposit with the Exchange Fund funds equivalent to the net clearing balance of other banks with it. Other members settle their clearing balances with their respective settlement banks.
The value of items cleared daily in the clearing is some HK$75 billion.
Regulation: Banking and deposit-taking busi- ness is regulated under the Banking Ordinance. The authorisation criteria for banks and deposit-taking companies seek to ensure that only fit and proper institutions are entrusted with public deposits. In particular, banks are licensed by the Governor in Council, and a bank incorporated overseas generally must satisfy three criteria to be eligible:
(a) it is subject to adequate supervision in its home.
country;
(b) it has total assets (less contra items) in excess
of US$14 billion; and
(c) some acceptable form of reciprocity by its
country is available to Hong Kong banks. Overseas banks licensed before 1978 are free to operate offices throughout the territory; those licensed since are restricted to a single office. This apart, there are no other barriers to overseas banks operating domestically in Hong Kong, whether in Hong Kong dollars or other currency. There is no requirement for branches of overseas banks to have assigned, or endowment capital; capital adequacy is a matter for the home supervisory authority.
Restricted licence banks and registered deposit- taking companies are authorised by the Financial Secretary and the Commissioner of Banking respectively. A number of overseas banks, which do not meet the size criterion for licensing as a bank, operate restricted licence banks or deposit-taking companies. It is still a requirement, however, that they be soundly-based institutions, subject to adequate home supervision.
Once authorised, banks and deposit-taking com- panies have to comply with the provisions of the Banking Ordinance which, inter alia, requires them to maintain a minimum level of capital and reserves, and prudent liquidity and capital adequacy ratios. They have to adhere to limitations on loans to any one customer or to directors and employees, and on shareholdings of other companies and holdings of interests in land.
They also have to submit periodic returns to the Office of the Commissioner of Banking, showing
their assets and liabilities, profit and loss account, capital adequacy and liquidity ratio, and financial information. The commissioner's appal is required for the appointment of directors, senior management, or controllers.
In order to promote proper standards of conduct and sound business practices in the banking industry, the Commissioner of Banking is empowered to issue guidelines on principles and practices to be followed by authorised institutions.
The Office of the Commissioner of Banking: The Commissioner of Banking is charged under the Banking Ordinance with the statutory responsibility of supervising banks and deposit-taking companies. His function is to promote the general stability and effective working of the banking system. The Office has a total of about 200 staff. Supervision is conducted principally through off-site analysis of institutions' financial returns and management information followed by prudential meetings with senior management of the institutions. On-site examinations will remain an indispensable tool of supervision but will be conducted less frequently. Meetings between the management of an authorised institution, its auditors and the Commissioner's Office can be convened to discuss the affairs and position of the institution.
In supervising banks with international operations, the Commissioner's Office follows international practice as embodied in the principles of the revised Concordat, issued by the Committee on Banking Regulations and Supervisory Practices based in Basle.
According to the Concordat, supervisory responsi- bility is shared between the authorities in the territories in which the banks operate. The Office therefore undertakes world-wide consolidated supervision of banks incorporated in Hong Kong, and maintains close contact with overseas banking supervisory authorities to facilitate better understanding of the affairs of individual institutions and the development of supervision policy.
Hong Kong has modified its capital adequacy rules for banks and deposit-taking companies to conform to the standard recommended by the Basle Committee of Supervisors in July 1988. Authorised institutions incorporated in Hong Kong are required to observe the international standard with effect from 31 December 1989.
The Banking Advisory Committee and the Deposit-taking Companies Advisory
Advisory Com- mittee: These Committees were established for the purposes of advising the Governor on matters relating to the Banking Ordinance, in particular those relating to business activities of banks and deposit-taking companies. The two Committees are both chaired by the Financial Secretary; with members comprising the Secretary for Monetary Affairs; the Commissioner of Banking and other members appointed by the Governor. These other members are usually partici- pants in the Hong Kong banking sector.
IS
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