HK issues hedge-fund warning

Doug Henwood dhenwood at panix.com
Mon May 3 09:11:23 PDT 1999


[Henry Liu has rejoined the list; he asked me to post this for him.]

Monday May 3 1999

HK issues US with hedge-fund warning

BARRY PORTER in Manila

Hong Kong Monetary Authority chief executive

Joseph Yam Chi-kwong has told the United

States not to put the interests of American

hedge funds and other highly leveraged

institutions ahead of small open markets such

as Hong Kong.

He warned the US and other economic

powerhouses against stalling proposed reforms

to the world's financial architecture in the wake

of the economic crisis.

Mr Yam told a gathering of leading

international bankers that the many working

groups set up to review possible global financial

sector changes were taking "too long".

"There is always the risk that, when the dust

has settled, the initiative and enthusiasm, dare I

say, on the part of those less affected by the

crisis, may be stifled," Mr Yam said in an

address to the Institute of International Finance

in Manila.

"There is also the risk that the plight of those

who have been seriously affected by the crisis

is not given the attention it deserves, simply

because they do not have an adequately

representative voice on the issues at hand at

these international forums."

Mr Yam said there had been no lack of ideas,

but these needed to be translated into action

sooner rather than later.

He said it was clear highly leveraged institutions

acted in a calculated, secretive and potentially

highly destablising way and safeguards were

needed.

Mr Yam made three suggestions.

He called for greater transparency of markets,

particularly over-the-counter (OTC) markets,

which, he said, were very opaque and were

where highly leveraged institutions conducted

most of their activities.

"Unlike ordinary exchanges, OTC markets are

subject to little, if any, transparency or

regulatory requirements, raising the risk of

price-ramping, collusion of misconduct," said

Mr Yam, calling for a better disclosure

framework.

He said he supported a German proposal for an

international credit register, which would collate

information on the exposures of international

financial intermediaries to large market players

that have a potential to create systemic risk.

He called for highly leveraged institutions and

hedge funds to be regulated.

The Basle Committee on Banking Supervision,

a working group of specialists from the Group

of 10 leading industrialised nations, has

recommended indirect regulation whereby

banks adopt more prudent policies on the

assessment and management of their exposure

to such institutions.

Mr Yam said: "Other tools of indirect

regulation could include the imposition of

capital charges on lending to such institutions,

raising margin and collateral requirements."

However, he was yet to be convinced that such

indirect measures could adequately protect

smaller markets like Hong Kong from

overwhelming speculative onslaughts.

Finally, the HKMA chief said there was a need

for international co-operation to tackle

regulatory arbitrage, in order to penalise highly

leveraged institutions trying to escape any new

market environment.

He suggested higher risk weights for

counter-party transactions for banks doing

business with financial entities operating out of

offshore jurisdictions that did not comply with

Basle core principles.

However, Mr Yam stressed he was not against

free markets and warned that a delicate

balancing act would be required not to impose

over-heavy reporting burdens or infringe too

much on proprietary information of individual

institutions.

South China Morning Post Publishers Ltd.

All Rights Reserved.



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