ENG-1984 — Page 120

92

THE ECONOMY

members) result in the setting of maximum rates payable on bank deposits of original maturities up to 15 months less a day, with the exception of deposits of $500,000 or above for less than three months term to maturity, for which banks may compete freely.

Licensed deposit-taking company status is granted at the discretion of the Financial Secretary. Licensed deposit-taking companies are required to have a minimum issued share capital of $100 million and paid-up capital of $75 million, and to meet certain partially subjective criteria regarding size, ownership and quality of management. They may also take deposits of any maturity from the public, but in amounts of not less than $500,000. There are no restrictions on the interest rates they may offer. At the end of 1984, there were 33 licensed deposit-taking companies.

The authority to register deposit-taking companies rests with the Commissioner of Deposit-taking Companies. Since April 1981, the commissioner has, at the direction of the Governor, restricted new registrations to companies which, as well as meeting certain basic criteria such as minimum paid-up capital of $10 million, are more than 50 per cent owned by banks in Hong Kong or elsewhere. Registered deposit-taking companies are restricted to taking deposits of $50,000 or more with an original term to maturity of at least three months. At the end of 1984, there were 311 registered deposit-taking companies.

The Commissioner of Banking, who is also the Commissioner of Deposit-taking Companies, is the authority for the prudential supervision of all deposit-taking institutions, as provided for by the Banking and Deposit-taking Companies Ordinances. The commis- sioner's office also operates an international division which obtains monthly returns from and sends examination teams to the overseas branches of Hong Kong incorporated banks and deposit-taking companies (subject to the permission of the local authorities). The principles of the revised Concordat issued by the Committee on Banking Regulations and Supervisory Practices, which meets regularly at Basle in Switzerland, and the principles of world-wide supervision of banking groups based in Hong Kong are accepted and practised.

Exchange Fund and Currency

—

The Hong Kong Government Exchange Fund was established by the Currency Ordinance of 1935 (later renamed the Exchange Fund Ordinance). From its inception, the Exchange Fund has held the backing to the note issue, with notes being issued nowadays by two note-issuing banks - the Hongkong and Shanghai Banking Corporation and the Standard Chartered Bank against their holdings of certificates of indebtedness. These are non-interest-bearing liabilities of the Exchange Fund, and are issued or redeemed as the amount of notes in circulation rises or falls. In 1976, the role of the fund was expanded, with the assets of the Coinage Security Fund (which held the backing for coins issued by the government) as well as the bulk of the foreign currency assets held in the government's General Revenue Account transferred to the fund. In both cases, the transfers were made against the issue by the fund of interest-bearing debt certificates denominated in Hong Kong dollars. On December 31, 1978, the Coinage Security Fund was merged with the Exchange Fund and all the certificates held by the Coinage Security Fund were redeemed. The Exchange Fund was further expanded in 1978 when the government began to transfer the Hong Kong dollar balances of its General Revenue Account (apart from working balances) to the Exchange Fund against the issue of interest-bearing debt certificates. Thus the bulk of the government's financial assets are now held by the Exchange Fund, mainly in the form of bank deposits in certain foreign currencies and in Hong Kong dollars, and in various interest-bearing instruments in foreign currencies. Today, the principal activity of the fund is the day-to-day management of these assets,

Page 120Page 121