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THURSDAY, NOVEMBER 17, 1983
ON THE INTEREST RATE RULES OF THE HONG KONG ASSOCIATION OF BANKS, HE POINTED OUT THAT IN THE MACRO-ECONOMIC CONTEXT. THE GOVERNMENT HAS TO BE CONSULTED CONCERNING MAXIMUM DEPOSIT RATES WHICH ARE SET BY HKAB TO BE BINDING ON ITS MEMBERS.
+NOTE THAT THE PROCESS IS ONE OF CONSULTATION ONLY, SO THAT THE FINAL DECISION HAS ALWAYS RESTED WITH THE COMMITTEE OF THE ASSOCIATION, BUT THE OBLIGATION TO CONSULT HAS ENSURED THAT THE COMMITTEE IS FULLY AWARE OF BROADER MONETARY POLICY CONSIDERATIONS, AS PERCEIVED BY GOVERNMENT,+ HE STRESSED.
WHILE UNDER THE NEW MONETARY REGIME IT IS IN THEORY NO LONGER NECESSARY FOR THE GOVERNMENT TO ATTEMPT TO INFLUENCE THE LEVEL OF INTEREST RATES, IT DOES NOT FOLLOW THAT THE INTEREST RATE RULES MUST BE ABANDONED, HE SAID,
+ IT IS ARGUABLE THAT, SO LONG AS HKAB IS PREPARED TO ADJUST RATES MORE FREQUENTLY THAN IN THE PAST AND IT HAS ALREADY DEMONSTRATED THAT IT IS THE EXISTENCE OF A SYSTEM OF CARTEL ISED RATES NEED NOT NECESSARILY IMPEDE THE FUNCTIONING OF THE ADJUSTMENT MECHANISM WITHIN THE NEW EXCHANGE RATE REGIME, MR LATTER STATED.
MEANWHILE, NOTHING HAD OCCURRED SUDDENLY TO SWEEP AWAY THE MICRO-ECONOMIC JUSTIFICATION BEHIND THE INTEREST RATE RULES, HE ADDED,
THIS JUSTIFICATION IS THE DESIRE TO PRESERVE AN ORDERLY BANKING SYSTEM AND TO AVOID THE SORT OF EXCESSIVE AND IMPRUDENT COMPETITION FOR DEPOSITS THAT MIGHT ENDANGER IN PARTICULAR SOME SMALLER AND OFTEN MORE CONSERVATIVE LOCAL BANKS.
HE ADDED, I WOULD NOT DENY, HOWEVER, THAT SINCE THE PRINCIPLE OF THIS SORT OF SAFEGUARD TO THE INDIGENOUS BANKS WAS FIRST ESTABLISHED THROUGH THE INTEREST RATE AGREEMENT OF THE EXCHANGE BANKS ASSOCIATION IN THE MIDDLE 1960'S, THERE HAS BEEN A STEADY EVOLUTION OF FIRMER SUPERVISION OF BANKS, WHICH MAY ALLAY FEARS ABOUT POTENTIALLY IMPRUDENT BEHAVIOUR.+
HE POINTED OUT THAT MOREOVER, THERE ARE 1 388 BRANCH OFFICES OF BANKS IN HONG KONG TODAY - PLÚS 135 HEAD OFFICES -- WHICH, GIVEN THE GEOGRAPHIC CONCENTRATION OF THE CUSTOMER POPULATION, MIGHT SEEM SOMEWHAT EXCESSIVE.
AND THIS COULD BE INTERPRETED TO MEAN THAT BANKS, HAVING BEEN RESTRICTED FROM COMPETING FREELY VIA INTEREST RATES, HAVE BEEN DRIVEN TO COMPETE ONLY IN OTHER AREAS OF SERVICE A SITUATION, WHICH MIGHT NOT NECESSARILY BE IN THE FULLEST INTERESTS OF CUSTOMERS, HE SAID.
+BUT DO NOT BE DELUDED ABOUT THE POSSIBLE CONSEQUENCES OF UNBRIDLED COMPETITION. AFTER AN INITIAL BOUT OF INTENSE COMPETITION, A MUCH MORE CONCENTRATED BANKING SECTOR MIGHT EMERGE, TO THE POINT WHERE THE VERY COMPETITION WHICH APPEARED TO BE FRUSTRATED BY THE EXPLICIT INTEREST-RATE CARTEL WAS INSTEAD BEING SUPPRESSED BY OLIGOPOLY.
/+I MIGHT