WEDNESDAY, NOVEMBER 28, 1979
ON THE SPLIT-LEVEL LIQUIDITY RATIO NOW PROPOSED FOR DEPOSIT- TAKING COMPANIES, MR. LI SAID THE UNOFFICIALS AT FIRST HAD SOME MISGIVINGS ABOUT THE PRUDENCE OF ADOPTING SUCH A TWO-TIER LIQUIDITY RATIO. THEY LATER AGREED TO IT AFTER HAVING CAREFULLY STUDIED THE MATURITY PATTERN OF THE DEPOSIT LIABILITIES OF LICENSED BANKS AND REGISTERED DEPOSIT-TAKING COMPANIES.
REFERRING TO THE EXTENDED LIST OF SPECIFIED LIQUID ASSETS WHICH CAN BE HELD AGAINST DEPOSIT LIABILITIES, MR. LI SAID THE UNOFFICIALS WELCOMED THE EXTENSION BUT WERE SOMEWHAT DISAPPOINTED THAT HONG KONG DOLLAR DENOMINATED CERTIFICATES WERE OMITTED FROM THE LIST AT THE FIRST STAGE.
MR. LI SAID IT WAS MOST DIFFICULT TO SAY WHEN A MARKET HAS MOVED FROM IMMATURITY TO MATURITY AND HE THOUGHT IT WAS PREFERABLE FOR THE GOVERNMENT TO SEIZE THE INITIATIVE AND SPECIFY SUCH CERTIFICATES AS LIQUID ASSETS WITHOUT FURTHER DELAY.
HE EXPLAINED THAT SINCE THE ACTUAL VOLUME OF TURNOVER IS RESTRAINED BY THE NUMBER OF ISSUES AVAILABLE FOR TRADING, AS MORE ISSUES COME TO THE MARKETS, THE VOLUME WILL INCREASE TO A HIGHER LEVEL THUS PROVIDING A MORE ADEQUATE SECONDARY MARKET.
AS THE GOVERNMENT HAS UNDERTAKEN TO REVIEW THIS +CHICKEN-AND- EGG+ SITUATION WITHIN A YEAR, THE UNOFFICIALS HAVE AGREED TO LET THIS PASS TOO WITHOUT AMENDMENT.
IN REPLY, THE FINANCIAL SECRETARY, THE HON. PHILIP HADDON-CAVE SAID THE GOVERNMENT ONLY PROPOSED TO INTRODUCE A SPLIT-LEVEL LIQUIDITY RATIO FOR DEPOSIT-TAKING COMPANIES.
+ IT IS ONLY A DEPOSIT-TAKING COMPANY THAT CAN OBTAIN A COMPETITIVE EDGE BY, AS IT WERE, SURREPTITIOUSLY REPAYING TIME DEPOSITS AHEAD OF SCHEDULE.+
HE ALSO NOTED THAT THE COMMISSIONER OF BANKING IS SATISFIED THAT HE CAN, IN THE COURSE OF HIS REGULAR EXAMINATION OF EVERY REGISTERED DEPOSIT-TAKING COMPANY MONITOR THE EXTENT TO WHICH TIME DEPOSITS ARE REPAID EARLY. THE COMMISSIONER IS ALSO SATISFIED THAT HE CAN MATCH THAT INFORMATION AGAINST THE TIME DEPOSITS WHICH EACH COMPANY HAS DECLARED AS SHORT-TERM FOR THE PURPOSES OF CALCULATING THE MINIMUM HOLDING OF SPECIFIED LIQUID ASSETS.
ON LIQUIDITY REQUIREMENTS FOR BANKS AND DEPOSIT-TAKING COMPANIES, MR. HADDON-CAVE AGREED WITH MR. LI THAT IT IS VERY DIFFICULT TO TELL WHEN A MARKET IN INSTRUMENTS, SUCH AS HONG KONG DENOMINATED CERTIFICATES OF DEPOSIT, HAS MOVED FROM IMMATURITY TO MATURITY.
HE SAID THE ESSENCE OF A SPECIFIED LIQUID ASSET IS THAT THE BANK OR DEPOSIT-TAKING COMPANY HOLDING THAT ASSET MUST BE ABLE TO REALISE IT, IN REASONABLE VOLUME AND AT AN ACCEPTABLE PRICE, IN A VERY SHORT PERIOD OF TIME.
HE WAS NOT CONVINCED THAT THE SECONDARY MARKET IN THESE CERTIFICATES OF DEPOSIT YET MEETS THAT CRITERION. HOWEVER, HE ASSURED THAT THE MARKET POSITION WOULD BE CLOSELY WATCHED AND THE SITUATION BE REVIEWED WITHIN 12 MONTHS.
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