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LAND PRICES IN PARTICULAR, WHICH HAVE BEEN MAJOR REASONS OTHER THAN POSSIBLE MALFEASANCE LEADING TO THE FAILURE OF A FEW REGISTERED DEPOSIT-TAKING COMPANIES, BUT THIS COULD NOT HAVE BEEN FORESEEN IN APRIL 1981. THE REQUIREMENT UNDER THE THREE-TIER STRUCTURE FOR DEPOSIT-TAKING COMPANIES TO RUN DOWN ALL SHORT-TERM DEPOSITS BY JUNE THIS YEAR MAY WELL HAVE CONTRIBUTED TO THESE PROBLEMS, BUT I AM NOT CONVINCED THIS WAS THE CRITICAL FACTOR. I AM, HOWEVER, CERTAIN
THAT HAD NOTHING BEEN DONE TO STOP THE EROSION OF BANK DEPOSITS THE RESULTING CUT THROAT' COMPETITION FOR DEPOSITS WOULD HAVE CAUSED MUCH GREATER DAMAGE TO THE FINANCIAL SECTOR THAN HAS BEEN
CAUSED BY THE RECENT FAILURE OF A FEW COMPANIES. MOREOVER, SOME OF THE SMALLER BANKS THEMSELVES WOULD HAVE BEEN AT RISK, WHICH IS OF MUCH GREATER CONSEQUENCE. I AM SURE THAT WHEN THE ADJUSTMENTS ARE OVER AND THE DUST HAS SETTLED, WE SHALL END UP WITH A SYSTEM WHICH PROVIDES BOTH BETTER PROTECTION FOR DEPOSITORS AND A SOUNDER
GENERAL STRUCTURE. UNQUOTE
13. QUOTE I AM OF COURSE VERY MUCH CONCERNED BY RECENT EVENTS AND MY BRANCH OF THE GOVERNMENT IS CONSIDERING HOW AS A RESULT OF
RECENT EXPERIENCES, OUR PRESENT SYSTEM, STRUCTURAL OR SUPERVISORY,
CAN BE IMPROVED. WE SHALL BE LOOKING AT THIS QUESTION CAREFULLY
AND IF INADEQUACIES ARE IDENTIFIED WHICH ARE CAPABLE OF IMPROVEMENT, THEN, SUBJECT TO THE USUAL CONSULTATIVE PROCESS, CORRECTIVE ACTION WILL BE TAKEN. BUT IT MUST BE RECOGNISED THAT BUREAUCRATIC INTER-
FERENCE AND CONTROL BEYOND WHAT IS NECESSARY CAN BE DAMAGING TO THE FINANCIAL SECTOR AND THE ECONOMY AS A WHOLE, AND THAT NO MATTER HOW STRINGENT CONTROLS ARE, MALFEASANCE AND POOR MANAGEMENT ON THE PART OF FINANCIAL INSTITUTIONS CAN NEVER TOTALLY BE AVOIDED. UNQUOTE
14. QUOTE MAY I CONCLUDE BY SUMMARISING WHAT I HAVE SAID. THE MAIN
POINT I HAVE ATTEMPTED TO MAKE IS THAT, IN THE CIRCUMSTANCES OF
TODAY, THE PROBLEMS WHICH SOME DEPOSIT-TAKING COMPANIES HAVE RECENTLY EXPERIENCED MIGHT HAVE BEEN CONSIDERABLY WORSE HAD IT NOT
BEEN FOR THE INTRODUCTION OF THE THREE-TIER SYSTEM, BECAUSE SMALL
COMPANIES WOULD HAVE FOUND SURVIVAL VERY MUCH MORE DIFFICULT IF THE
BANKS HAD ABANDONED THE INTEREST RATE AGREEMENT, OR IF DEPOSIT-
TAKING COMPANIES HAD BEEN REQUIRED TO COMPLY WITH THAT AGREEMENT.
I HAVE ALSO POINTED OUT THAT IN THE MINDS OF MANY BANKERS, THE RULE
WHICH NOW PREVENTS REGISTERED DTC'S FROM TAKING DEPOSITS UP TO 3
MONTHS HAS EXISTED SINCE 1964, AND THAT IT IS NOT, THEREFORE,
SOMETHING NEW. ALTHOUGH SOME WILL CONTEST THIS VIEW IT IS A POINT
WHICH SHOULD NOT BE OVERLOOKED BECAUSE IT MUST HAVE BEEN CLEAR TO
EVERYBODY CONCERNED THAT THIS UNCERTAINTY COULD NOT HAVE BEEN
ALLOWED TO CONTINUE INDEFINITELY. UNQUOTE
CONFIDENTIAL
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