XN000022-1986-04-09 — Page 3

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WEDNESDAY, APRIL 9, 1986

+MOREOVER, SUCH PROBLEMS MIGHT NOT HAVE BEEN CONTAINED

:ITHIN HONG KONG AND WE HAVE TO HAVE REGARD FOR OUR INTERNATIONAL RESPONSIBILITIES. IN MY VIEW, IN THE CIRCUMSTANCES AT THAT TIME, NOT ONLY WOULD THE CURRENCY HAVE BEEN AFFECTED BUT IT WOULD PROBABLY HAVE COLLAPSED ALTOGETHER, SIR JOHN ADDED.

SIMILARLY, SIR JOHN POINTED OUT, +IF KA WAH BANK HAD COLLAPSED LAST SUMMER AT THE SAME TIME AS OTB THERE WOULD UNDOUBTEDLY HAVE BEEN A SERIOUS DOMINO EFFECT ON OTHER SMALL BANKS AND THE INTERBANK SYSTEM. THIS WOULD CERTAINLY HAVE HAD A SERIOUS EFFECT ON THE HONG KONG DOLLAR.+

SIR JOHN WENT ON TO EXPLAIN THAT THE RESPONSIBILITIES PLACED BY LAW ON THE FINANCIAL SECRETARY AND THE BANKING COMMISSIONER FOR DEALING WITH BANKING PROBLEMS COULD NOT BE SHARED MORE WIDELY FOR TWO REASONS. THE FIRST WAS THE NEED FOR BANKING SECRECY, WHICH WAS NOT UNIQUE TO HONG KONG BUT REFLECTED NORMAL INTERNATIONAL PRACTICE. THE SECOND WAS THE NEED FOR THEM TO BE ABLE TO RESPOND PROMPTLY, DECISIVELY AND CONFIDENTIALLY WHEN PROBLEMS AROSE.

THE LEGISLATIVE COUNCIL WAS INVOLVED IN THE HANG LUNG AND OTB TAKEOVERS NOT BECAUSE OF THE NEED TO PROVIDE MONEY, WHICH COULD HAVE BEEN ARRANGED UNDER THE EXCHANGE FUND ORDINANCE, BUT BECAUSE SPECIAL LEGISLATION TO EXPROPRIATE PRIVATE ASSETS WAS REQUIRED. +SUCH ACTION HAS NOT SINCE BEEN NECESSARY. I HOPE IT NEVER WILL RE AGAIN,+ SIR JOHN SAID, ADDING THAT THE GOVERNMENT WOULD HAVE THE DIFFICULT RESPONSIBILITY OF PROVIDING MANAGEMENT FOR THE BANKS THAT IT OWNS.

TURNING TO THE SCOPE OF THE EXCHANGE FUND, SIR JOHN DISCLOSED THAT IT CONTAINS THE MAJOR PART OF HONG KONG'S VISIBLE RESERVES SAY ANOTHER SAY $19 BILLION - PLUS THE NOTE AND COIN BACKING $19 BILLION.+

HE SAID THIS FUND HAD BEEN WELL MANAGED FOR MANY YEARS AND CONSIDERABLE SURPLUSES HAD CONSEQUENTLY BEEN BUILT UP.

+THE COST OF ACQUIRING HANG LUNG AND OTB HAS ALREADY BEEN WRITTEN OFF IN THE EXCHANGE FUND ACCOUNTS AND, EVEN IF WE WERE TO TAKE A 'WORST CASE' VIEW OF EVERY OTHER COMMITMENT INTO WHICH THE FUND HAS ENTERED IN PROVIDING SUPPORT TO BANKS AND THIS IN MY VIEW WOULD BE OVERLY PESSIMISTIC - THE SUM INVOLVED WOULD STILL BE LESS THAN HALF OF THE GROWTH OF THESE INNER RESERVES IN THE LAST FOUR YEARS,+ SIR JOHN SAID.

INDEED,

THERE WERE THUS NO GROUNDS FOR CONCERN THAT THE RESERVES WERE BEING USED UP IN SUPPORT OF TROUBLED LOCAL BANKS. SIR JOHN SAID, THE HOLDING OF LARGE RESERVES WOULD BE PURPOSELESS IF THE ECONOMY HAD BEEN TURNED INTO A DESERT BY OBSTINATE REFUSAL TO USE THOSE VERY RESERVES WHICH WE HAD PRUDENTLY MADE AVAILABLE FOR JUST SUCH A PURPOSE.+

/SIR JOHN