TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 166

The Banks

2.

In the absence of a Central Bank or Monetary Authority, bank

notes are issued by the Hongkong and Shanghai Banking Corporation, the

Chartered Bank and the Mercantile Bank. Apart from very small

authorised fiduciary issues, the backing for the currency takes the

form of Hong Kong dollar Certificates of Indebtedness issued by the

Government's Exchange Fund as the counterpart of foreign exchange paid over by the banks (although since July 1972 as a temporary measure

because of a shortage of exchange in the market currency issues have

been made against Hong Kong dollars at par). The Hongkong Bank

dominates the banking scene in terms both of currency issue and general

banking and it also acts on occasions as lender of last resort, runs

the Clearing House and is authorised by the Financial Secretary to

intervene in the exchange market when necessary.

There are 74 registered banks in Hong Kong comprising

33 foreign banks (including the Hongkong Bank which is so defined although it is a Hong Kong registered bank), 25 local Chinese banks,

13 mainland banks and three unincorporated banks. In addition, there

are approximately 200 finance companies, both local and foreign,

including merchant banks.

Whereas registered banks are subject to the provisions of

the Banking Ordinance, including the 25% liquidity requirement, the

only restriction on the operations of finance companies is a

prohibition on the acceptance of demand deposits, a right reserved to

registered banks. It appears also that Certificates of Deposit are

not subject to the liquidity requirement whether issued by banks or

finance companies. However, even if the liquidity requirement did

apply under the terms of the present Banking Ordinance to C.D.s put

out by banks, finance companies

many of which are owned by local

banks

would not be affected.