HKMA beginning to swing the bat

Henry C.K. Liu hliu at mindspring.com
Thu Apr 29 06:55:20 PDT 1999


While the HKMA is a highly competent organization, it is misleading to call it a central bank. HKMA, because of HK's currency board regime, lacks the monetary policy independence to perform most central bank functions. The remote-controlling central bank for HK is the US Federal Reserve. Also, because the HKMA is hierachially subservient to the HK Finance Secretary, it is very different than the relationship the politically independent Federal Reserve has to the Treasury Department. HK Financial Secretary Donald Tsang is the boss of HKMA Chief Executive Joseph Yam, unlike Rubin's relationship to Greenspan.

Henry C.K. Liu

DANIEL.DAVIES at flemings.com wrote:


> What with this and the inspired intervention in the stock market, the
> HKMA's beginning to get my vote for Central Bank of the Year. The scheme
> looks similar to the London Rules, but with a much heavier threat if the
> banks don't play ball.
>
> dd
>
> HONG KONG, April 29 (LPC) - Hong Kong Monetary Authority Deputy Chief
> Executive David Carse said
> on Thursday he could not rule out using statutory powers on banks who
> stand in the way of a successful
> debt workout if "moral suasion" proved insufficient.
>
> He said he found it difficult to envisage circumstances where the HKMA
> would use its more formal powers,
> but that if a particular workout was of great importance "I can't rule it
> out."
>
> "We would need to look at whether the issue was big enough in the public
> interest to justify the use of our
> formal powers," Carse said. "We haven't used our formal powers up to now --
> it hasn't been our practice to
> do so. We rely on moral suasion and we will continue to rely on moral
> suasion."
>
> The number of compulsory winding-up orders in Hong Kong has leapt to 763
> in the 1998/99 financial
> year, an all time high. The average in the previous five years was 480.
>
> Carse, speaking at a business luncheon, said that since the introduction
> of the so-called "Hong Kong
> Rules" last April -- the Hong Kong Association of Banks' guidelines on how
> banks should handle debt workouts
> -- the HKMA had been involved in 10 cases to act as an "honest broker."
>
> Typically the authority intervened when a small minority of banks,
> sometimes only one, refused to sign a
> restructuring agreement or threatened action that would have caused the
> workout to collapse, he said.
>
> In those circumstances, the HKMA would expect the recalcitrant bank or
> banks to come up with a very
> persuasive case to justify why they did not go along with the majority
> view.
>
> In 1998, domestic lending in Hong Kong fell by HK$122 billion of which
> over 60 percent was the result of
> the withdrawal of Japanese and contintental European banks, said Carse.
>
> Carse noted that as foreign banks have sought to cut their exposure to
> Hong Kong, their commitment to
> pursue successful workouts may have been undermined.
>
> "Clearly if banks are reducing their commitment they may feel that they
> have less responsibility in relation
> to workouts," Carse said. But he noted that foreign banks should cooperate
> in workouts because it was in their own best interests.
> "The principle of a workout is that the bank should do better than they
> would do in a liquidation," Carse said.
> "Otherwise there is no point in the banks participating and you might as
> well throw in the towel."
>
> "The banking system can only work effectively if there is an effective
> means of restructuring debt," Carse
> added. "It is not however our practice to use our powers under the Banking
> Ordinance to force banks to take
> decisions on workouts which are against their commercial judgement."
>
> ((Paul Caine, Hong Kong Newsroom +852 2568-6773, Fax +852 2526-1400
> hongkong.newsroom at reuters.com))
>
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> Thursday, 29 April 1999 09:50:23
> RTRS [nHKG66997]
>
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