XN000022-1986-05-28 — Page 5

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WEDNESDAY, MAY 28, 1986

CLAUSE 76: MAINTENANCE OF ADEQUATE PROVISIONS

A SECTION PROVIDING FOR CONSULTATION WITH THE COMMISSIONER IN DETERMINING WHAT WAS +ADEQUATE IN MAINTAINING PROVISIONS AGAINST BAD AND DOUBTFUL DEBTS HAD BEEN CRITICISED AS IMPRACTICAL, AND WOULD BE DELETED.

HOWEVER, SIR JOHN ADDED: +AT THE SAME TIME, PRUDENCE REQUIRES THAT, FIRST, ADEQUATE PROVISIONS BE MAINTAINED AGAINST BAD AND DOUBTFUL DEBTS AND DIMINUTION OF THE VALUE OF ASSETS, AND NOT JUST THE FORMER AND SECOND, THAT THIS BE DONE AT ALL TIMES, AND NOT JUST BEFORE DECLARING PROFIT OR LOSS. A SECOND AMENDMENT TO THIS CLAUSE WILL MEET THESE POINTS.+

CLAUSE 82: COMMISSIONER'S DIRECTIONS

THIS CLAUSE WAS MEANT TO TACKLE THOSE CASES WHERE AN INSTITUTION'S EXPOSURES TO A NUMBER OF DIFFERENT PERSONS IN FACT ALL DEPENDED ON THE CREDITWORTHINESS OF A SINGLE PARTY. THE BILL PROVIDED FOR THE COMMISSIONER TO ISSUE APPROPRIATE DIRECTIONS TO THE INSTITUTIONS TO REGULATE THESE TYPES OF EXPOSURE. IT WAS NOW CONSIDERED THAT SINCE BREACH OF THESE DIRECTIONS WOULD ATTRACT CRIMINAL SANCTION, THIS WOULD VEST TOO MUCH POWER IN THE COMMISSIONER. THUS THERE WAS AN AMENDMENT TO THE EFFECT THAT THE COMMISSIONER MIGHT ISSUE GUIDELINES ON THE SUBJECT OF EXPOSURE TO A SINGLE PARTY. +AN INSTITUTION WILL NOT BE SPECIFICALLY SANCTIONED FOR VIOLATION OF THESE GUIDELINES, BUT SUCH VIOLATION WILL BE TAKEN INTO ACCOUNT IN THE SUPERVISORY AUTHORITIES' ADMINISTRATION OF OTHER PROVISIONS OF THE BILL, + SIR JOHN

SAID.

IN CONCLUSION, SIR JOHN REITERATED HIS VIEW THAT THE ENACTMENT OF THE LEGISLATION DID NOT MEAN THAT THERE WOULD NOT BE FURTHER AMENDMENT AND IMPROVEMENTS WITH THE PASSAGE OF TIME, AND, IN THIS CONNECTION, HE MENTIONED FOUR ISSUES.

FIRST, HE SAID HE WOULD NOT BE SURPRISED IF EVENTS AND EXPERIENCES SUGGESTED THE NEED FOR CHANGES IN SOME ELEMENTS OF THE CAPITAL ADEQUACY RATIO POSSIBLY EVEN BEFORE IT BECAME OPERATIONAL IN TWO YEARS' TIME.

SECOND, HE SAID THAT THOUGH THE BILL PROVIDED FOR AGGRIEVED PARTIES TO APPEAL TO THE GOVERNOR IN COUNCIL OR, IN SOME CASES, TO THE FINANCIAL SECRETARY, COUNCILLORS WOULD BE AWARE THAT THE ADMINISTRATION HAD BEEN REVIEWING THE GENERAL QUESTION OF ADMINISTRATIVE APPEALS, AND THE OUTCOME SHOULD BE KNOWN RELATIVELY SOON. BUT HE SAID HE PERSONALLY DID NOT LIKE THE PROPOSAL OF A TRIBUNAL.

/THIRD, HE