XN000022-1979-04-06 — Page 2

FRIDAY, APRIL 6, 1979

BILLS TO ENABLE FINANCIAL SECRETARY

TO VARY LIQUIDITY RATIOS FOR MONETARY POLICY PURPOSES

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A BILL DESIGNED TO MAKE IT CLEAR THAT THE FINANCIAL SECRETARY MAY, FOR MONETARY POLICY PURPOSES, VARY THE MINIMUM LIQUIDITY RATIOS WHICH BANKS IN HONG KONG MUST OBSERVE IN RESPECT OF THE DEPOSITS THEY HOLD FROM THE NON-BANK PUBLIC IS PUBLISHED TODAY (FRIDAY) IN THE GOVERNMENT GAZETTE TOGETHER WITH A SECOND BILL GIVING HIM IDENTICAL POWERS IN RESPECT OF THE LIQUIDITY RATIOS APPLIED TO DEPOSIT-TAKING COMPANIES.

THE TWO BILLS ARE THE BANKING (AMENDMENT) BILL 1979 AND THE DEPOS IT-TAKING COMPANIES (AMENDMENT) BILL 1979.

THE FINANCIAL SECRETARY WILL MOVE THE SECOND READINGS OF BOTH BILLS IN THE LEGISLATIVE COUNCIL ON WEDNESDAY, APRIL 11,

A GOVERNMENT SPOKESMAN EXPLAINED THAT THE BASIC LIQUIDITY RATIO FOR HONG KONG BANKS WAS SET AT 25 PER CENT BY THE BANKING ORDINANCE OF 1964.

IN 1975 THE FINANCIAL SECRETARY WAS (UNDER THE BANKING (AMENDMENT) ORDINANCE 1975) GIVEN THE POWER TO RAISE THE RATIO, BUT AT THAT TIME THERE WAS NO INTENTION OF DOING SO IN PURSUIT OF MONETARY POLICY: THE 1975 AMENDMENT WAS PUT FORWARD IN THE CONTEXT OF PRUDENTIAL SUPERVISION OF INDIVIDUAL BANKS.

THE SPOKESMAN ADDED THAT THE DEPOSIT-TAKING COMPANIES (AMENDMENT) BILL IS DESIGNED TO GIVE TO THE FINANCIAL SECRETARY AN IDENTICAL POWER TO ALTER, FOR MONETARY POLICY PURPOSES, THE MINIMUM LIQUIDITY RATIOS APPLIED TO DEPOSIT-TAKING COMPANIES.

HOWEVER, THE MINIMUM RATIOS HAVE NOT YET BEEN SET FOR THESE COMPANIES, BECAUSE SECTION 24(A) OF THE DEPOSIT-TAKING COMPANIES ORDINANCE, DEALING WITH LIQUIDITY RATIOS, HAS NOT YET COME INTO FORCE. THAT WILL HAPPEN LATER THIS YEAR, WHEN THE MINIMUM RATIOS WILL BE SPECIFIED BY THE FINANCIAL SECRETARY.

AS SOON AS THOSE RATIOS ARE FIRST SPECIFIED, THE FINANCIAL SECRETARY WILL (UNDER THE BILL PUBLISHED TODAY) BE ABLE TO ALTER THEM FOR MONETARY POLICY PURPOSES,

THE SPOKESMAN ALSO SAID THAT IN HIS BUDGET SPEECH ON FEBRUARY 26 THE FINANCIAL SECRETARY SAID (PARAGRAPH 260) THAT AN INCREASE IN THE MINIMUM LIQUIDITY RATIOS MIGHT IN CERTAIN CIRCUMSTANCES BE APPROPRIATE FOR THE PURPOSES OF MONETARY POLICY.

+THESE BILLS ARE THEREFORE DESIGNED TO MAKE IT CLEAR THAT, IF THE CIRCUMSTANCES ARISE, THE MINIMUM LIQUIDITY RATIOS COULD BE RAISED IN PURSUIT OF MONETARY POLICY, HE SAID,

+THOSE CIRCUMSTANCES HAVE NOT YET ARISEN, AND IT IS HOPED THEY WILL NOT ARISE. CERTAINLY THE FINANCIAL SECRETARY DOES NOT INTEND TO MAKE USE OF THESE POWERS AS SOON AS THEY ARE AVAILABLE. THEY ARE POWERS TO BE KEPT IN RESERVE,+ THE SPOKESMAN ADDED.

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