XN000022-1979-04-11 — Page 4

WEDNESDAY, APRIL 11, 1979

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IT WILL, EXPLAINED MR. HADDON-CAVE, REQUIRE BANKS HOLDING BALANCES FROM THE EXCHANGE FUND ON DEMAND, AT CALL AND AT SHORT NOTICE TO HOLD SPECIFIED LIQUID ASSETS EQUIVALENT TO 100 PER CENT OF THOSE BALANCES,

AT PRESENT, LIQUID ASSETS HAVE TO BE HELD AGAINST THESE BALANCES TO A MINIMUM OF ONLY 25 PER CENT: UP TO 75 PER CENT IS, THEREFORE, AVAILABLE TO BE LENT TO THE NON-BANK PUBLIC, OR TO BE INVESTED WITH NO LIQUIDITY RESTRAINT.

+ IN OTHER WORDS, THIS BILL WILL IMPOSE A CERTAIN ADDITIONAL CONSTRAINT ON THE BANKS CONCERNED, HE NOTED.

AGAINST TIME DEPOSITS IN THE NAME OF THE EXCHANGE FUND- THE MINIMUM LIQUIDITY REQUIREMENT WILL REMAIN AT ITS PRESENT LEVEL OF 25 PER CENT.

MR. HADDON-CAVE THEN REFERRED TO REMARKS BY THE HON. CHARLES YEUNG THAT THE BILL WOULD NOT ACHIEVE ITS PURPOSE.

HE SAID HE DID NOT BELIEVE MR. YEUNG WAS RIGHT FOR TWO REASONS.

+FIRST, AND MOST IMPORTANT, I HAVE A HIGH REGARD FOR THE BANKS WITH WHOM THE EXCHANGE FUND HOLDS ITS BALANCES. THEY KNOW AND UNDERSTAND EXACTLY WHAT THE PURPOSE OF THIS MEASURE

IS, AND I DO NOT BELIEVE THAT THEY WILL BEHAVE IN ANY WAY WHICH MIGHT FRUSTRATE ITS PURPOSE.

→SECONDLY, THERE IS NO APPARENT NEED FOR THE BANKING SYSTEM AS A WHOLE TO TAKE STEPS TO CIRCUMVENT THE NEW REQUIREMENT IN THE WAY SUGGESTED BY MR. YEUNG, HE ADDED.

MR. HADDON-CAVE ALSO DID NOT AGREE WITH ANOTHER COMMENT BY MR. YEUNG THAT FOREIGN BANKS IN HONG KONG WOULD ENTER

INTO WINDOW-DRESS ING+ TRANSACTIONS WITH THEIR HEAD OFFICES OVERSEAS.

+ IN RELATION TO COMPANY BALANCE SHEETS THE PHRASE *WINDOW-DRESSING MEANS TO ME OPERATIONS WHICH ARE DESIGNED TO MAKE A COMPANY'S POSITION SEEM MUCH BETTER THAN IT REALLY IS. SO ALL THE OPERATIONS AND DEVICES USED FOR THAT PURPOSE ARE COMPLETELY ARTIFICIAL, AND VERY WELL HIDDEN.

+BUT IN THE HONG KONG BANKING SYSTEM, THE HOLDING OF LIQUIDITY IN THE FORM OF A DEPOSIT WITH A BANK OVERSEAS IS A NORMAL AND QUITE LEGITIMATE PROCEDURE.

+THE AMOUNT OF SUCH LIQUIDITY, AND IN PARTICULAR THE AMOUNT OF ANY DEPOSITS AT THE HEAD OFF ICE OVERSEAS OF A FOREIGN BANK IN HONG KONG, IS REPORTED EACH MONTH TO THE COMMISSIONER OF BANKING,+ SAID MR. HADDON-CAVE.

IN CONCLUSION, THE FINANCIAL SECRETARY SAID THE BILL +IS, I BELIEVE, ANOTHER TIMELY MOVE TO ADAPT OURSELVES+ TO THE FLOATING EXCHANGE RATE REGIME.

THE BANKING