CO129-555-6 Banking crisis 24-9-1935 - 18-10-1935 — Page 16

6o di P. Ezechiel-6 Conry

ATR MAIL

My dear Vernon,

Colonial Secretary's Office,

Hong Kong.

September 24th, 1935.

16

Finance & Commerce in Shanghai was writing

articles the other day about the "banking crisis in Hong Kong

and echoes of this may have reached you. So you may like to

have something about the position.

As regards the two banks which have actually

closed their doors, my information is that the Bank of Canton

had been in an unsound position for many years, and was bound

to go sooner or later; it is widely believed here that the

liquidation is not unlikely to reveal some transactions which

will justify criminal proceedings; but this will not be known

for certain until the Special Manager reports. The Commercial

& Industrial Savings Bank is thought to have been unsuccessful in

its exchange speculations, but not criminal.

But the comparatively small amount of milk spilt

by these two failures is far less important than the general

position, which is rather staggering to my Occidental mind.

The process of multiplication of banks here proceeds (1) by the

importation of branches of foreign banks which have no hope or

intention of getting enough legitimate business to justify their

existence, but can only earn their keep by exchange speculation

(2) by a process of growth of Chinese institutions, which appears

to be as follows: All Chinese trading institutions, from the

humblest shop, I understand, receive money on deposit, in the

first place from relations and friends of the shopkeeper, and then

from an ever widening circle of mostly small Chinese depositors.

As the circle widens, more money is received by what has by now

come to be called the savings bank branch of a successful business

than it can employ: there are practically no sound and liquid

investments to be had, and if there were they would not return