TNAG-0912-FCO40-1122-Policy-on-housing-and-resettlement-in-Hong-Kong-1979 — Page 151

C.S. 166

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XCC(77)8

(b) the arrangements by which other commercial banks

and other financial institutions are brought within this scheme; and

(c) the proportion of the loan to be covered by the

guarantee.

33

However, Honourable Members should note that, when dis- cussing their proposal, the two banks made it clear that they objected to the establishment of a mortgage bank which they presumably see as a potential competitor, particularly if it were authorised to accept deposits. It is not clear whether the two banks would maintain their objection to the point of not participating in the Home Ownership Scheme if the mortgage bank was held in reserve in case of subsequent need (see paragraph 35 below).

Assessment of Proposed Mortgage Facilities

34

Honourable Members can now be reasonably assured that, subject to further and more detailed examination of terms, of procedures for implementation and of the maximum requirement for loans, suitable mortgage facilities required to underpin the Home Ownership Scheme can be devised. The mortgage facilities proposed in paragraphs 19-33 amount, in effect, to two parallel schemes, one involving direct lending, the other involving fund-raising by a mortgage bank for on-lending and both capable of providing loan finance on terms that would satisfy the Working Party's guidelines.

35

But, in view of the two banks' objection to the creation of a mortgage bank, it may be useful to consider what role it should play in the future. Rothschilds original concept was a parallel approach with the mortgage bank playing an important role in providing the necessary loans but, if the banking sector and other financial institutions can meet most of the requirement for loan finance, it seems clear that the mortgage bank could play a somewhat dormant role (i. e. its fund-raising operations could be limited to the issue of partial guarantees). On the other hand, it is likely that the commercial banks may decide that they could only meet a part of the total requirement for mortgage finance on prudential grounds or having regard to opportunity cost. In this event, the mortgage bank should have a supplementary role, in the sense that it would raise funds to meet the shortfall between the total requirement for loan finance and the amount made available by financial institutions. In either situa- tion, therefore, the existence of the bank could be justified and the Working Party recommends:

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