XN000022-1981-02-25 — Page 26

WEDNESDAY, FEBRUARY 25, 1981

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NEW LEGAL DEFINITION ON BANK ING

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THE GOVERNMENT IS ABOUT TO DRAFT LEGISLATION ON A DEFINITION OF BANK ING BUSINESS, THE FINANCIAL SECRETARY, THE HON SIR PHILIP HADDON-CAVE, SAID TODAY.

LEGISLATIVE AMENDMENTS ARE ALSO BEING CONSIDERED TO CREATE A NEW CATEGORY OF DEPOSIT-TAKING COMPANIES (DTCS) WHICH COULD BE LOOSELY DESCRIBED AS MERCHANT BANKS, SIR PHILIP SAID IN PRESENTING HIS BUDGET.

HE ALSO SAID THE NEW HONG KONG ASSOCIATION OF BANKS WOULD SOON BE REVIEWING THE RULES BINDING ON MEMBER BANKS AND HOPED IT WOULD PROVIDE A CHANCE TO CONSIDER THE EXTENT TO WHICH BANKS SHOULD BE FREE TO COMPETE ON THE RANGE AND COST OF THE DIFFERENT SERVICES WHICH THEY OFFERED TO THEIR CUSTOMERS.

TURNING TO THE BANKING BUSINESS DEFINITION, SIR PHILIP SAID

IT HAD REMAINED UNCHANGED SINCE 1964.

+THE PRESENT DEFINITION OF BANKING BUSINESS REALLY NEEDS TO BE RECONSIDERED IN THE CONTEXT OF A CAREFUL EXAMINATION OF THE ROLE AND SCOPE OF THE DTCS INDUSTRY, HE SAID.

SIR PHILIP SAID THERE WERE TWO RELATED ASPECTS TO THE QUESTION OF THE DEFINITION:

* THE NEED TO REINFORCE THE HONG KONG ASSOCIATION OF BANKS' INTEREST RATE AGREEMENT, SINCE THE INTEREST RATE MECHANISM IS, EFFECTIVELY, THE ONLY MONETARY POLICY WHICH IS AVAILABLE TO US WHATEVER MAY BE ARGUED TO THE CONTRARY BY SOME COMMENTATORS, WHO SEEM TO ASSUME THAT THE IR IDEAS, TO THE EXTENT THAT THEY ARE COMPREHENSIBLE, HAVE NOT ALREADY BEEN CONSIDERED AND REJECTED, FOR ONE REASON OR ANOTHER, BY US.

*

THE NEED TO SAFEGUARD THE INTERESTS OF DTCS, BOTH FROM THE POINT OF VIEW OF THE IR DEPOSITORS AND THE CUSTOMERS TO WHOM THEY HAVE LENT THE IR DEPOSIT RESOURCES (AND, ALSO, TO SOME EXTENT, FROM THE POINT OF VIEW OF THE PROPRIETY OF REMOVING FROM THEM THE ABILITY TO PURSUE A BUSINESS WHICH THEY HAVE BEEN CARRYING ON IN HONG KONG FOR UP TO 10 YEARS OR MORE).

SIR PHILIP SAID IT HAD BEEN ARGUED BY SOME THAT BANKS ALONE SHOULD BE PERMITTED TO TAKE DEPOSITS WITH AN ORIGINAL TERM OF MATURITY OF LESS THAN THREE MONTHS AND THAT DTCS SHOULD ONLY BE ABLE TO ACCEPT DEPOSITS WITH AN ORIGINAL TERM TO MATURITY OF THREE MONTHS OR MORE.

+ THE MAIN DIFFICULTY WITH SUCH A RE-DEFINITION OF THE BUSINESS WHICH DTCS WOULD BE PERMITTED TO UNDERTAKE IS THAT IT FAILS TO TAKE INTO ACCOUNT THE EXISTENCE OF WHOLESALE DEPOSITS,+ HE EXPLAINED.

HE SAID THESE WERE LARGE DEPOSITS PLACED WITH DTCS BY COMPANIES (OTHER THAN BANKS AND DTCS) AND BY SOME INDIVIDUALS, FOR ANY PERIOD, SHORT OR LONG.

/TER PRINCIPAL