ENG-1965 — Page 62

FINANCIAL STRUCTURE

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annual settlement of debts, one of the small Chinese banks closed its doors owing to heavy withdrawals. This failure started a run on other Hong Kong Chinese banks. A second failure of a much larger bank occurred immediately after Chinese New Year, followed a few weeks later by the take-over-with government financial support of one of the largest local Chinese banks by a leading bank. The withdrawals due to Chinese New Year and the run on the Chinese banks caused a shortage of notes within the Colony and the government imposed a temporary limit of $100 a day on withdrawals of cash from personal accounts. The Bank of England made available Sterling notes to the extent of £20 million ($320 million) which were declared legal tender in the Colony but which it was not necessary to issue. The government subsequently provided considerable financial support, through the media of the two banks which act as its bankers, to those banks adversely affected by the run.

The Banking Ordinance 1964, which was enacted on 1st December 1964, provides that banking business shall be transacted in the Colony only by a company licensed for that purpose. Each bank is required to have a minimum paid-up capital of $5 million, or the equivalent in foreign currency, and to build up published reserves of an amount equal to its paid-up capital. Each bank must also maintain a minimum level of specified liquid assets and there are certain restrictions on the classes of other assets it may hold. Provisions are included for the annual auditing of banks' accounts and the publication of certain information. Monthly returns are required from all banks. The Banking Ordinance makes provision for interim periods within which banks are to bring their affairs into line with the ordinance. The liquidity requirements thus came into operation on 1st June 1965, but some of the other requirements do not come into full effect until 1st December 1966. Monthly returns were submitted by all banks during the year.

At the end of 1965 there were 74 incorporated banks in the Colony, of which 34 were incorporated in Hong Kong. A total of 301 banking offices were maintained. A total of 51 banks were authorized to deal in foreign exchange. Many of these banks have branches or correspondents throughout the world and are able to offer a very comprehensive service. Monthly clearings during