XN000022-1995-03-29 — Page 85

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Banking supervision

Following is a question by the Hon Allen Lee Peng-fei and a written reply by the Secretary for Financial Services, Mr Michael Cartland, in the Legislative Council today (Wednesday):

Question:

The incident concerning the British Barings Banking Group has caused global repercussions, indicating that the mere monitoring of the local business activities of banks is not an effective guarantee of the sound financial state of such institutions. In this connection, will the Government inform this Council:

(a) what Government policies are currently in place to ensure that both the local and overseas business activities of the banks in the territory are in a sound financial state, and whether the Hong Kong Monetary Authority will step up efforts to monitor such business activities in the light of the Barings incident; and

(b)

whether, in regard to banking groups setting up subsidiary companies to engage in various kinds of investment activities, there are close links between the Securities and Futures Commission and the Hong Kong Monetary Authority to monitor the investment activities of such subsidiary companies, so as to prevent the collapse of banks as a result of losses incurred in such investment activities?

Reply:

(a)

The Hong Kong Monetary Authority (HKMA) adopts a "continuous supervision" approach in respect of banking supervision. This involves the on-going monitoring of institutions through a variety of techniques, aimed at detecting problems at an early stage. Such techniques include on-site examination, off-site reviews, reports by external auditors and other major powers under the Banking Ordinance.

In respect of supervision of banks with international operations, the HKMA follows international practice as embodied in the principles of the revised Concordat and the 1992 Minimum Standards issued the Basle Committee on Banking Supervision.