HONDADY, OCTOBER 18, 1982
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THIS SAFEGUARD IS NECESSARY BECAUSE THE CONSUMER + IS RARELY IN A POSITION TO ASSESS THE CREDENTIALS OF THE DEPOSIT-TAK ING INSTITUTIONS AND PARTS WITH HIS MONEY ON TRUST. IT ALSO PROTECTS THE SMALLER BANKS AND THERE ARE TWO REASONS WHY ONE SHOULD WANT TO DO THIS:
+THE FIRST IS THAT, WITHOUT SOME MEASURE OF PROTECTION FOR SMALLER BANKS, THE BANKING SECTOR IN HONG KONG, WHICH IS ALREADY HIGHLY CONCENTRATED, WITH ONE PREDOMINANT BANK, MIGHT WELL BECOME STILL MORE CONCENTRATED. THIS WOULD TEND IN THE LONG RUN ACTUALLY TO DIMINISH COMPETITION.+
+THE SECOND REASON FOR PROTECTING SMALLER BANKS IS THE DESIRE TO PRESERVE AN INDIGENOUS ELEMENT IN THE BANKING INDUSTRY, AND MANY OF THE SMALLER BANKS HAPPEN TO BE THE LOCAL ONES. IN THIS RESPECT, THE GOVERNMENT'S STANCE IS SIMILAR TO THAT OF GOVERNMENTS ACROSS THE WORLD, MR BLYE SAID.
MR BLYE POINTED OUT THAT WHILE HE HAD TRIED TO EXPLAIN SOME OF THE LOGIC BEHIND HKAB RULES, THEIR STRUCTURE WAS NOT IMMUTABLE.
+1 WOULD EXPECT THESE RULES TO EVOLVE OVER TIME, BUT WITHOUT SUDDEN SWEEPING CHANGES. THE GOVERNMENT IS NOT READY TO SURRENDER THE INFLUENCE THAT IT CAN EXERT ON INTEREST RATES THROUGH THE INTEREST RATE RULES. HKAB HAS, HOWEVER, RECENTLY SET UP A SUB-COMMITTEE TO CONSIDER ON A CONTINUING BASIS POSSIBLE ADJUSTMENTS TO ITS GENERAL RULES, AND SOME CHANGES CAN BE EXPECTED TO EMERGE IN DUE COURSE, HE SAID.
IN HIS TALK, MR BLYE ALSO FORECAST THAT BANKS MIGHT MOVE TOWARDS CHARGING MORE DIRECTLY AT THE POINTS WHERE COSTS ARISE AND THUS GIVE THEMSELVES GREATER SCOPE TO PAY AND CHARGE COMPETITIVE INTEREST RATES.
HE EXPLAINED THAT THERE HAS BEEN A SIGNIFICANT REDUCTION IN CURRENT ACCOUNTS AS A PROPORTION OF BANKING RESOURCES, WHILE ON THE OTHER HAND THERE ARE NOW VERY LARGE NUMBERS OF SAVINGS ACCOUNT HOLDERS WHO MAINTAIN RELATIVELY SMALL BALANCES, YET FULLY UTILISE THE SERVICE.
+THUS, BANKS HAVE NOT ONLY FACED A RELATIVE LOSS OF THE INTEREST-FREE MONEY ON CURRENT ACCOUNTS, BUT HAVE ALSO BEEN FACING AN INCREASING VOLUME OF TRANSACTIONS ON SAVINGS ACCOUNTS, ON WHICH THEY HAVE NEVERTHELESS CONTINUED TO PAY QUITE ATTRACTIVE
INTEREST RATES.
+THE RISING COSTS OF PREMISES, EQUIPMENT AND STAFF, WHICH HAVE BEEN NEEDED TO PROVIDE, ON AN INCREASING SCALE, THESE AND OTHER FREE OR SUBSIDISED SERVICES, HAVE MORE THAN OFFSET THE CONSIDERABLE PRODUCTIVITY GAINS WHICH HAVE BEEN ACHIEVED, SO THAT BANKS HAVE BEEN DRIVEN TO WIDEN THE GAP BETWEEN THEIR STANDARD BORROWING AND LENDING RATES,+ HE SAID.
THIS WIDENING IS ILLUSTRATED BY THE FACT THAT FOR MOST OF THE 1970S, BEST LENDING RATE WAS TYPICALLY ABOUT FOUR PER CENT, SOME TIMES LESS, ABOVE THE RATE PAID ON SAVINGS ACCOUNTS TODAY THE GAP IS SIX PER CENT.
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