ENG-1985 — Page 58

THE ECONOMY

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a total of 1 394 offices in Hong Kong. In addition, there were 131 representative offices of foreign banks.

Only licensed banks may operate cheque or savings accounts. They may also accept deposits from the public of any size and any maturity. But the interest rate rules of the Hong Kong Association of Banks (of which all licensed banks are required by law to be 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 1985, there were 35 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 (this will be increased to $100,000 from March 1986) or more with an original term to maturity of at least three months. At the end of 1985, there were 278 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

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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 being 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.