ENG-1965 — Page 19

REVIEW

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and Hong Kong notes were being re-deposited in the banks. When it became possible to lift restrictions on withdrawals after they had been in force one week, the banks-including those which had been under pressure-re-opened to normal business. There was no need to issue the Sterling notes (to the regret, no doubt, of monetary historians) and the notes were returned in due course to Britain. After making an assessment of the position the Com- missioner of Banking reported that the strength of the banking system as a whole had been little affected by the runs and that total deposits on 24th February were less than 2 per cent below their level at 1st January. There had, however, been a degree of redistribution of deposits between banks, and the position of banks which had lost deposits became fairly tight. The government there- fore arranged to make substantial liquid funds available to them so that the need to restore their liquidity would not involve any excessively rapid contraction of their advances such as might cause serious dislocation to trade, industry and investment. One other temporary consequence of these events was a certain amount of disruption of the system of credit in use in certain parts of the economy-notably small industry-which depended on the accept- ability of post-dated cheques.

Banking business was slowly but steadily returning to normal when a second shock was received. On 9th April a serious run began on the Hang Seng Bank, the second largest bank incorporated in the Colony. It is possible that the run was sparked off by rumours, possibly malicious, that one of its directors was being questioned by the police. This was wholly untrue and it was officially denied, but the run continued to grow in momentum until on the fourth day it was announced that the Hongkong and Shanghai Banking Corporation had acquired a controlling interest in the Hang Seng Bank. This transaction, which despite its size was negotiated to com- pletion in the space of 14 hours, restored confidence immediately.

Examination of the affairs of the two banks whose closure brought this train of consequences showed that the Ming Tak had invested practically all its assets in real estate speculation at peak prices. The Canton Trust had got into trouble by inadequately controlled lending, on little or no security, mostly to small industrial enter- prises and it was officially estimated that 60 per cent of its advances were irrecoverable. Because of the magnitude of the deposits and