TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 170

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noteworthy that the eventual request in January 1973 for voluntary

restraint was not also addressed to finance houses, over which the

Banking Commissioner has no jurisdiction at all. In April of this

year it was common talk in Hong Kong that following the Banking

Commissioner's request some banks had been directing customers to

their finance house subsidiaries.

The advances made for stock exchange operations appear to

have taken place through the normal process of local credit creation and not by drawing down external assets, in particular sterling. Indeed the banking system as a whole could not use sterling to

increase lending as the market in sterling is between the banks

themselves and the only possible buyer of sterling would be the

Hong Kong government who would not have sufficient Hong Kong dollars

for the purpose.

:

Although between end-September 1972 and end-March 1973 the banks' sterling holdings fell by approximately £144 mn., £139 mn. of this was accounted for by the Hongkong Bank, who, in agreement with the Financial Secretary, had been drawing down sterling partly to support the Hong Kong dollar rate in the market and also in order to sell

sterling to the Bank of China whose offtake has recently been in the region of £40-£50 mn. a month.

A further repercussion of the stock exchange speculation was that in the absence of local paper and an official buyer of last resort there were enormous and very disrupting changes in bank liquidity at times of most new issues, which, as already mentioned,

were frequently oversubscribed several hundred times. The situation

arose basically because for many new issues the Hongkong Bank were bankers to the issuers and the Banking Commissioner, in order to try to curb oversubscription, had requested that cheques for all share applications should be cleared whether the applicant was successful or Unsuccessful applicants greatly outnumbered the successful ones

not.