2.
Speech given by Mr. D.W.A. Blye to
Harvard Business School Association
on 22nd February 1983
Opening remarks.
No doubt you are aware of the criticisms that have
recently been made about the three-tier system of the financial
sector though this system has not yet settled into place. These
criticisms centred around the claim that the requirement for
registered deposit-taking companies to run down all of their short-term deposits in two stages by the end of June this year
has led to the collapse of a number of registered deposit-taking companies. Their collapse, it was further claimed, has meant
loss to depositors and was harmful to the health of the financial
system and to the development of Hong Kong as an international
financial centre.
3.
I intend today to comment on these criticisms by putting
our present situation in perspective. There are, as some of you
may remember, two main reasons for the three-tier structure.
The first and very important reason is to help to ensure the maintenance
of the interest rate agreement as an instrument of monetary
reaso
policy. The second inter-related reason is to protect the smaller
deposit-taking institutions from cut throat competition.
4.
At the time the three-tier structure was set up, the major
banks had experienced a fairly large scale erosion of their business. From end-December 1978 to end-March 1981, for example, the
banks share of the Hong Kong deposit base decreased from 85% of
total deposits to 67%. This decline had taken place because the
deposit-taking companies were not subject to the limits imposed
by the interest rate agreement, and they were, therefore, able to
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