XN000022-1985-11-27 — Page 45

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WEDNESDAY, NOVEMBER 27, 1985

HE NOTED THAT IN RECENT YEARS THERE HAD BEEN A TREMENDOUS GROWTH IN THE NUMBER OF MONEY MARKET INSTRUMENTS AND IT HAD EEEN SAID THAT THE ATTRACTION OF SOME OF THESE WAS THEIR RANKING AS LIQUID ASSETS UNDER THE BANKING AND DEPOSIT-TAKING ORDINANCES.

+HOWEVER THIS IS SOMEWHAT OF AN ILLUSION BECAUSE INDIVIDUAL BANKS HAVE FOUND IT DIFFICULT TO DISPOSE OF THESE ASSETS AT SHORT NOTICE IN A LIQUIDITY SQUEEZE, HE SAID.

WHILE THE INTERBANK MARKET AND STANDBY FACILITIES PROVIDED BY THE LEADING BANKS COULD AFFORD SOME RELIEF, SMALLER INSTITUTIONS FELT THAT REGULAR BORROWING OR DISCOUNTING FROM THE IR LARGER COMPETITORS WOULD PLACE THEM AT A SUBSTANTIAL DISADVANTAGE, MR LI ADDED.

HE PROPOSED THAT THE MONETARY AFFAIRS BRANCH OR THE BANK ING COMMISSION SHOULD DEVISE A SPECIAL ARRANGEMENT, WHEREBY GOVERNMENT COULD, IN ONE FORM OR OTHER, BE APPROACHED DIRECTLY TO PURCHASE SUCH INSTRUMENTS AT DISCOUNTED RATES, SUCH RATES TO BE DETERMINED BY AN AGREED FORMULA.

+WERE SUCH AN AVENUE OPEN TO SMALLER INSTITUTIONS, IT WOULD HELP LIQUIDITY, IT WOULD GIVE GOVERNMENT AN ADDED INSTRUMENT FOR MONETARY CONTROL AND IT WOULD ALSO REDUCE THE NEED FOR SMALLER INSTITUTIONS TO CONSULT THEIR LARGER RIVALS, HE SAID.

CONCED ING THAT NO SPECIAL CONCESSION OR PRIVILEGE SHOULD EE GIVEN TO ANY GROUP, HE WARNED THAT RIGID ENFORCEMENT OF SOME PROPOSED REFORMS MIGHT LEAD TO A MAJOR WITHDRAWAL OF BANK ING BUSINESS FROM HONG KONG.

+MAY SUGGEST THEREFORE THAT THE CONCEPT OF THE 'LIMITED SERVICE BANK EE RE-ACTIVATED WHEREBY INSTITUTIONS WHICH CONFINE

=MSELVES TO OFFSHORE OPERATIONS, AND DO NOT TAKE HONG KONG LLAR DEPOSITS OR COMPETE IN THE DOMESTIC BANKING MARKET, WOULD

SUBJECT TO MINIMAL SUPERVISION AND REGULATION, HE SAID.

EARLIER IN HIS SPEECH, MR LI SAID THAT PUBLIC CONFIDENCE AINED BOTH FRAGILE AND VOLATILE, PARTICULARLY WITH RESPECT THE BANKING AND MONETARY SYSTEM.

-NO EFFORT SHOULD BE SPARED TO STRENGTHEN THAT CONFIDENCE HE URGED.

HE ALSO MAINTAINED THAT WE SHOULD NOT CONTEMPLATE CHIL REPLACING THE LINKED RATE IF THERE WAS NO VIABLE ALTE NATIVE.

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