WEDNESDAY, FEBRUARY 25, 1981
25
+THE PRINCIPAL CHARACTERISTIC OF THESE DEPOSITS IS THAT THEY ARE VERY SENSITIVE TO INTEREST RATE CONSIDERATIONS: IF SUCH DEPOSITS CANNOT EARN IN HONG KONG A RATE OF INTEREST AT, OR VERY CLOSE TO, THE MARKET RATE, AS OPPOSED TO THE RATE PAID BY THE BANKS UNDER THE INTEREST RATE AGREEMENT, THESE DEPOSITS MAY VERY WELL, AND SUBJECT TO THE EXCHANGE RATE CONSIDERATIONS, BE MOVED OUT OF HONG KONG, WITH CONSEQUENTIAL PRESSURE ON THE EXCHANGE RATE.
+CLEARLY, AN INTERNATIONAL FINANCIAL CENTRE SHOULD BE ABLE TO OFFER A MARKET RATE OF INTEREST TO THOSE WISHING TO PLACE LARGE DEPOSITS HERE, WHETHER THEY ARE CONTROLLED FROM INSIDE HONG KONG, OR FROM ELSEWHERE, HE SAID.
BUT, HE ADDED, THIS WAS PRECISELY WHAT WOULD NOT BE AVAILABLE IN HONG KONG IF THE BANK ING ORDINANCE WERE AMENDED TO GIVE THE BANKS THE SOLE RIGHT TO TAKE DEPOSITS WITH AN ORIGINAL TERM TO MATURITY OF LESS THAN THREE MONTHS, WITH NO OTHER LEGISLATIVE CHANGES, AND WITH THE INTEREST RATE AGREEMENT OF THE HONG KONG ASSOCIATION OF BANKS CONTINUING IN FORCE, AS MUST BE THE CASE.
ON THE PROPOSED MERCHANT BANK CATEGORY, SIR PHILIP SAID A SMALL NUMBER OF DTCS COULD BE LICENSED AS SUCH, IN ACCORDANCE WITH CRITERIA NOW BEING DEVELOPED
+THEY WOULD BE PERMITTED TO TAKE DEPOSITS WITH NO LIMITATION AS TO THE IR TERM TO MATURITY, BUT THE MINIMUM SIZE OF ANY INITIAL DEPOSIT WOULD BE SET AT, SAY, $500 000 FOR ANY TERM (WHICH SUM WOULD HAVE TO BE REVISED UPWARDS FROM TIME TO TIME).+
SIR PHILIP ADDED THAT ALL OTHER DTCS WOULD BE RESTRICTED TO DEPOSITS WITH AN ORIGINAL TERM TO MATURITY OF THREE MONTHS OR MORE AND THEY WOULD, AS NOW, BE RESTRICTED TO DEPOSITS OF $50 000 OR MORE (WHICH SUM WOULD, ALSO, HAVE TO BE REVISED UPWARDS IN DUE COURSE FOR IT WAS SET AS LONG AGO AS 1976).
THE POSITION OF LICENSED BANKS IN THE MARKET, HE EXPLAINED, WOULD BE IN FUTURE AS FOLLOWS:
* THEY WOULD CONTINUE TO HAVE A MONOPOLY FOR ALL
DEPOSITS OF UP TO $50 000.
*
THEY WOULD ALSO HAVE THE SOLE RIGHT TO TAKE DEPOSITS WITH AN ORIGINAL TERM TO MATURITY OF LESS THAN THREE MONTHS UP TO, SAY, $500 000.
* FOR LARGER DEPOSITS OF ANY MATURITY, THEY WOULD
HAVE TO COMPETE WITH THE PROPOSED NEW CATEGORY OF MERCHANT BANKS.
*
FOR DEPOSITS OF $50 000 OR MORE WITH AN OR IG INAL TERM TO MATURITY OF THREE MONTHS OR MORE, THEY WOULD HAVE TO COMPETE WITH THOSE DTCS NOT LICENSED AS MERCHANT BANKS, AS WELL AS THE LATTER IN RESPECT OF DEPOSITS OF $500 000 OR MORE.
+ I BELIEVE THIS APPROACH WOULD STRENGTHEN THE MONETARY SYSTEM, AND ALSO THE GOVERNMENT'S INFLUENCE OVER INTEREST RATES, WHILE LEAVING AVAILABLE TO BOTH LARGE AND SMALL DEPOSITORS A REASONABLE CHOICE OF INSTITUTIONS WITH WHOM THE IR FUNDS CAN BE PLACED, HE SAID.
J
/SIR PHILIP