XN000022-1981-08-11 — Page 3

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TUESDAY, AUGUST 11, 1981

THESE THREE DIFFERENT TYPES OF INSTITUTION ALL HAD DISTINCT ROLES TO PLAY, AND IT MIGHT EVENTUALLY BE APPROPRIATE TO RECOGNISE THIS DISTINCTION BY DEVELOPING THE SOMEWHAT CRUDE MINIMUM LIQUIDITY RATIOS TO WHICH THEY WERE NOW SUBJECT INTO RATIOS DESIGNED MORE SPECIFICALLY TO TAKE INTO ACCOUNT THE DIFFERING NATURE AND MATURITY PATTERN OF THEIR DEPOSIT LIABILITIES.

BUT THIS WAS A COMPLEX AND HIGHLY CONTENTIOUS SUBJECT, AND MUCH WORK WOULD BE NEEDED TO ENSURE THAT THE EXPERIENCE IN OTHER COUNTRIES ON WHICH HONG KONG WOULD HAVE TO DRAW WAS APPROPRIATE FOR HONG KONG CONDITIONS.

+ IT IS IMPORTANT TO UNDERLINE THIS LATTER POINT, FOR WHILE WE WISH TO LEARN FROM OTHERS, HONG KONG SHOULD IN ALL AREAS, MAKE ITS OWN DECISIONS TO SUIT ITS UNIQUE, CLEARLY SUCCESSFUL (WARTS AND ALL) AND LARGELY CHINESE STYLE, MR BREMRIDGE SAID.

MR BREMRIDGE SAID THE QUESTION OF WITHHOLDING TAX ON INTEREST ON FOREIGN CURRENCY DEPOSITS PLACED WITH BANKS AND DEPOSIT-TAKING COMPANIES POSED A NUMBER OF PROBLEMS.

IN EXPLAINING THE ADVANTAGES AND DISADVANTAGES OF THE WHOLE QUESTION OF WITHHOLDING TAX, MR BREMRIDGE SAID, +WE HAVE NOT YET REACHED A DECISION, EXCEPT THAT FOR MANY REASONS IT WOULD BE UNACCEPTABLE TO REMOVE ENTIRELY INTEREST TAX, THE YIELD FROM WHICH THIS YEAR IS EXPECTED TO BE ABOUT $900 MILLION PLUS A FURTHER $400 MILLION COMING FROM INTEREST SUBJECT TO PROFITS TAX.+

THE ISSUE WAS +MORE COMPLEX THAN IS SUGGESTED BY SOME RATHER SIMPLISTIC COMMENTS MADE FROM TIME TO TIME+.

HE LOOKED FORWARD TO FULL DISCUSSIONS WITH THE BANKS ASSOCIATION, AND PROMISED THAT HE WAS GENUINELY OPEN-MINDED WITH A PREDILECTION FOR FREEDOM+.

REFERRING TO THE +FUTURE SCOPE OF THE INTEREST RATE AGREEMENT+, HE SAID HE WAS AWARE THAT SOME BANKS WERE

UNDERSTANDABLY CONCERNED ABOUT THEIR ABILITY TO COMPETE, EITHER DIRECTLY OR THROUGH A DEPOSIT-TAKING COMPANY SUBSIDIARY FOR LARGE DEPOSITS AFTER THE MIDDLE OF NEXT YEAR.

+ONE POSSIBLE RESPONSE TO THIS PARTICULAR PROBLEM COULD BE EITHER TO REMOVE FROM THE AGREEMENT'S SCOPE SHORT TERM DEPOSITS OF $500 000 OR MORE, OR TO ALLOW A HIGHER RATE OF INTEREST TO BE PAID ON SUCH DEPOSITS, HE SAID.

MR BREMRIDGE SAID THE GOVERNMENT WAS CLOSELY OBSERVING PROBLEMS AS THEY AROSE AND CONSIDERING WHAT STEPS, IF ANY, SHOULD BE TAKEN SENSIBLY TO DEAL WITH THEM.

++ AM PERSONALLY COMMITTED TO THE VIRTUES OF CONSULTATION LEADING HOPEFULLY TO DECISION BY CONSENSUS, HE SAID.

IN CONCLUDING,