XN000022-1982-12-09 — Page 2

THURSDAY, DECEMBER 9, 1982

FINANCIAL INSTITUTIONS URGED TO STICK TOGETHER

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MEMBERS OF THE FINANCIAL COMMUNITY WERE URGED TODAY TO PULL TOGETHER TO OVERCOME THE PROBLEMS BEING EXPERIENCED IN THE DEPOSIT- TAKING COMPANY SECTOR.

THE CALL CAME FROM THE COMMISSIONER OF BANKING AND COMMISSIONER

OF DEPOSIT-TAKING COMPANIES, MR COLIN MARTIN.

SPEAKING AT A LUNCHEON MEETING OF THE AMERICAN CHAMBER OF COMMERCE, MR MARTIN SAID MOST OF THE PROBLEMS WHICH HAD COME TO LIGHT IN THE LAST FEW WEEKS WERE CONCERNED WITH THE DIFFICULTIES OF SOME NON-BANK-OWNED DEPOSIT-TAKING COMPANIES IN MAINTAINING ADEQUATE LIQUIDITY.

+THESE PROBLEMS HAVE ARISEN VERY MUCH AS A RESULT OF BANKS PARTICULARLY FOREIGN BANKS, EXAMINING FAR MORE CLOSELY THAN IN THE PAST THE EXTENT AND QUALITY OF THEIR EXPOSURE TO DEPOSIT-TAKING COMPANIES IN HONG KONG. THERE ARE A NUMBER OF REASONS WHY THESE BANKS HAVE BEEN RE-EXAMINING EARLIER DECISIONS MADE BY THEM BUT, I THINK, THE PREDOMINANT REASON IS THE RESCHEDULING OF THE DEBTS OF CERTAIN PROPERTY GROUPS IN HONG KONG. AS A RESULT, BANKS STARTED TO LOOK AT THEIR EXPOSURE TO OTHER SECTORS OF THE HONG KONG ECONOMY AND, QUITE NATURALLY, AS THE PROBLEMS OF A FEW DEPOSIT-TAKING COMPANIES BECAME KNOWN, THE BANKS BECAME EVEN MORE CAUTIOUS, HE EXPLAINED.

*THE LIQUIDITY PROBLEMS INITIALLY AFFECTED A SMALL NUMBER OF RELATIVELY SMALL NON-BANK-OWNED DEPOSIT-TAKING COMPANIES, WHOSE INABILITY TO MEET THEIR OBLIGATIONS IN THE MONEY MARKET HAS AFFECTED SOME OTHER DEPOSIT-TAKING COMPANIES.+

MR MARTIN SAID THE RESPONSIBILITY FOR SOLVING THE LIQUIDITY PROBLEMS OF INDIVIDUAL DEPOSIT-TAKING COMPANIES RESTED WITH THE IR MANAGEMENT AND SHAREHOLDERS, WHOSE DUTY IT WAS TO NEGOTIATE WITH BANKS AND OTHER DEPOSIT-TAKING COMPANIES WITH THE OBJECT OF RESTOCKING THEIR LIQUID ASSETS.

I REMAIN IN TOUCH WITH THE SITUATION OF EACH SUCH COMPANY, SOME OF WHOM HAVE RETAINED PROFESSIONAL ADVISERS BUT, IN RECENT WEEKS, I HAVE BEEN CAREFUL TO AVOID THE TEMPTATION TO DESPATCH IMMEDIATELY A TEAM OF EXAMINERS TO A DEPOSIT-TAKING COMPANY WHICH REPORTS LIQUIDITY DIFFICULTIES FOR, TO DO SO, COULD IMPLY TO THE MANAGEMENT OF THAT COMPANY THAT THEY COULD AWAIT MY REPORT, IN THE HOPE THAT IT WOULD TELL THEM WHAT TO DO. THAT IS NOT THE CASE. IT IS THE IR RESPONSIBILITY TO TAKE ACTION. ONCE THAT ACTION IS TAKEN, I SEND IN AN EXAMINATION TEAM TO SATISFY MYSELF THAT THE ACTION IS ADEQUATE.+

HE STRESSED THAT HE COULD NOT ALLOW A DEPOSIT-TAKING COMPANY TO CONTINUE TO ACCEPT DEPOSITS FROM THE PUBLIC IF IT BECAME UNABLE TO RESTOCK ITS LIQUID ASSETS IN ACCORDANCE WITH THE LAW.

/+STATUTORY LIQUIDITY