37. There were two notable bank failures during the year under survey, both Chinese banks working on modern business methods. The Bank of Canton closed in September and has not so far re-opened in the Colony. This bank did a very considerable business in the remittances to China of the savings of overseas Chinese. The general practice of payees of these drafts, who are widely scattered throughout the country, is to retain the drafts until for some purpose they need the money. As a consequence, outstandings, especially when local exchange is low, are generally very heavy. In this case, the rise in exchange resulted in a flood of demands for payment for re-investment in foreign currencies. This, coupled with heavy drawings by other branches on the local concern, proved too much for its cash resources, and consequent losses to the Chinese creditors were considerable. The other failure, that of the National Commercial and Savings Bank, was due to the mass panic of small depositors who readily assume that the difficulties of one bank necessarily concern others. Broadly considered, its failure was due to the elementary banking error of investing short-term savings deposits in long-term advances or in securities not immediately convertible. This bank has re-organised and recently reopened. The native banks working privately on Chinese domestic lines—and they are considerable in number and influence—have been singularly free from difficulties. The banking interests of the Colony have never been sounder than they were at the close of the year, but the capital investment they represent has hitherto depended mainly on returns from exchange and bullion operations. The management of the dollar must inevitably bring about a serious decline in profits from this source.
THE TREASURY,
HONG KONG,
23rd April, 1936.
EDWIN TAYLOR,
Colonial Treasurer.
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in
37. There were two notable bank failures during the year under survey, both Chinese banks working on modern business methods. The Bank of Canton closed in September and has not so far re-opened in the Colony. This bank did a very con- siderable business in the remittances to China of the savings of overseas Chinese. The general practice of payees of these drafts, who are widely scattered throughout the country, is to retain the drafts until for some purpose they need the money. As a consequence outstandings, especially when local exchange is low, are generally very heavy. In this case the rise exchange resulted in a flood of demands for payment for re- investment in foreign currencies. This, coupled with heavy drawings by other branches on the local concern proved too much for its cash resources, and consequent losses to the Chinese creditors were considerable. The other failure, that of the National Commercial and Savings Bank was due to the mass logic of small depositors who readily assume that the difficulties of one bank necessarily concern others. Broadly considered, its failure was due to the elementary banking error of investing short-term savings deposits in long term advances or in securities not immediately convertible. This bank has re-organised and recently reopened. The native banks working privately on Chinese domestic lines-and they are considerable in number and influence have been singularly free from difficulties. The banking interests of the Colony have never been sounder than they were at the close of the year, but the capital investment they represent has hitherto depended mainly on returns from exchange and bullion operations. The management of the dollar must inevitably bring about a serious decline in profits from this source.
THE TREASURY,
HONG KONG,
23rd April, 1936.
EDWIN TAYLOR,
Colonial Treasurer.
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