Transcript Banking
Bank A bank is a financial institution for keeping money and valuables safely, the money is paid out on the customer’s order. French word “Banque” means safekeeping. Italian word “Banca” means transaction. Bank A bank is a financial intermediary. In Hong Kong, the Banking Ordinance defines a bank as a company which carries on banking business and holds a valid licence granted by the Hong Kong Monetary Authority together with the Special Administrative Region Chief Executive. Banking Hong Kong Banking Ordinance 1948 defined banking as “the receipt of money on current or deposit account or in payment and collection of cheques drawn by or paid in by a customer or in the making or receipt of remittances or in the purchase and sale of gold or silver coin or bullion.” Three-tier financial system Before 1989 : After 1989 : • Licensed Banks • • Licensed Deposit- • Taking Companies • Registered DepositTaking Companies • Licensed Banks Restricted Licence Banks Deposit-Taking Companies Statistics of the Banking Sector At the end of June 2004, there were 134 licensed banks, 43 restricted licence banks and 37 deposit-taking companies in business. The total number of authorized institutions was 214. Moreover, there were 89 representative offices of overseas financial institutions. Statistics of Authorized Institutions Authorized Institutions 2001 December 29 2004 June 24 Licensed Banks (Overseas) 118 110 Restricted Licence Banks 49 43 Deposit-taking Companies 54 37 Licensed Banks (Hong Kong) Three-tier Financial Structure Authorized Institution Licensed Bank Paid-up Share Capital HK$150 Million Restricted Licence Bank HK$100 Million DepositTaking Company HK$25 Million Amount of each deposit Not Not less than Not less than restricted HK$500,000 HK$100,000 Maturity of each deposit Not restricted Not restricted Not less than 3 months Licensed banks In Hong Kong, only licensed banks may operate current and savings accounts, and accept deposits of any size and maturity from the public and pay or collect cheques drawn by or paid in by customers. Restricted licence banks Restricted licence banks are principally engaged in merchant banking and capital market activities. They may take deposits of any maturity of HK$500,000 (approximately US$64,103) and above. Deposit-taking companies Deposit-taking companies are mostly owned by, or otherwise associated with, banks. These companies engage in a range of specialised activities, including consumer finance and securities business. They may take deposits of HK$100,000 (approximately US$12,821) or above with an original term of maturity of at least three months. The requirements for granting a bank licence • Minimum paid-up share capital of not less than HK$150 million for Licensed Banks and HK$100 million for Restricted Licence Banks. • For overseas applicant, the company must be incorporated in a country where the supervisory authorities have the capabilities to meet the minimum supervision standards as recommended by the Basle Committee. The requirements for granting a bank licence • There is also an asset requirement for Licensed Banks, i.e. US$16 billion for overseas applicant and HK$4 billion for local applicant. • For local applicant, it has been an authorized institution for at least 10 years. Moreover, there is an additional requirement for Licensed Bank which is the minimum public deposit of HK$3 billion. The requirements for granting a bank licence • Whether or not the HKMA issues a licence to an applicant also depends on the applicant’s own merit, a prudent attitude towards the banking business and the overall considerations of the banking industry at large. • For a foreign bank to obtain a licence in Hong Kong, the HKMA will also consider if there is any reciprocity to Hong Kong banks in that country. Development of Banking in Hong Kong The rapid industrialization in Hong Kong since the 1950s improved the standard of living of a fast-growing population. Many banks started to build up a branch network to expand their business. As competition intensified, the banks started to offer higher interests to depositors in order to attract funds, and easier terms to borrowers in order to increase their lending portfolio. Development of Banking in Hong Kong By 1961, both the real estate and stock markets were booming. The problem of liquidity squeeze arised in some smaller banks and a bank run started on the Liu Chong Hing Bank. To solve the problem, the Hongkong and Shanghai Banking Corporation and the Chartered Bank declared a joint support for the Liu Chong Hing Bank. Development of Banking in Hong Kong In 1965, a bank run started again on the Ming Tak Bank and the Canton Trust & Commercial Bank Limited. The liquidation proceedings revealed the banks’ huge investment in real estate. The panic-stricken public started to withdraw deposits from Hang Seng Bank Ltd., Kwong On Bank Ltd., Dao Heng Bank Ltd., Far East Bank Ltd. and Wing Lung Bank Ltd. Development of Banking in Hong Kong To tackle the problem : (i) Hongkong and Shanghai Banking Corporation and Chartered Bank declared their unlimited support for the banks; (ii) The Exchange Banks’ Association decided that before maturity, no deposits were allowed to be withdrawn with penalty in interest payable. Development of Banking in Hong Kong As the funds of the financial institutions were basically short-term in nature, overexposure in the long-term property sector automatically led to a fundamental imbalance in the liquidity of the banking system. In 1982 the prominent Tse Lee Yuen chain of jewellery outlets went into liquidation and many small investors who had purchased the “gold certificates” issued by the company lost substantial sums of money. There was a bank run on the Hang Lung Bank Ltd. which had close connections with the Tse Lee Yuen group. Development of Banking in Hong Kong Banking Ordinance 1964 All locally-incorporated banks were required to publish their annual accounts in at least one English and one Chinese newspaper, along with a list of directors, principal officers and subsidiaries. The small family-owned unincorporated banks were allowed to continue but were not authorized to use the word “bank” and were not empowered to accept deposits for more than $2 million at any one time from the public. Development of Banking in Hong Kong Banking Ordinance Amendment 1967 (i) The Commissioner of Banking was granted the regulatory powers, with the Financial Secretary retaining an overall consultative role. (ii) The minimum net worth of banks eligible for licences was raised from $5 million to $10 million. (iii) The Commissioner was empowered to appoint a second auditor to examine a bank’s accounts. Development of Banking in Hong Kong From the early 1970s, there were finance companies engaging in multi-currency deposittaking, corporate finance, underwriting new shares, loan syndication, hire purchase, etc. With the collapse of the stock market in 1973, there was concern over the supervision of the unregulated finance companies in order to protect the interests of depositors. Development of Banking in Hong Kong Deposit-Taking Companies Ordinance 1976 : (i) DTCs were required to register with the Commissioner of Banking on payment of an annual fee. (ii) The minimum paid-up capital was $2.5 million (iii) DTCs were prohibited from using the term “bank” and from accepting public deposits of less than $50,000. (iv) DTCs were required to published their audited annual accounts. Development of Banking in Hong Kong The three-tier structure of financial institutions, consisting of Licensed Banks, Licensed Deposit-Taking Companies and Registered Deposit-Taking Companies, was formed with the enactment of the Deposit-Taking Companies (Amendment) Ordinance 1981. The rationale was : (i) To ensure the effectiveness of the interest rate agreement of the Hong Kong Association of Banks as a monetary policy instrument. (ii) To control the inflationary effect of a “free for all” interest rate regime. (iii) To ensure the general stability of the monetary system by protecting the small depositors through the control of competition in deposit taking. Development of Banking in Hong Kong In 1983, while there was the currency crisis, the Hang Lung Bank Ltd. was insolvent. Through the Exchange Fund, the government took over the bank and injected HK$300 million into the paid-up capital. The shareholders of the bank were not paid any compensation and all directors were removed. The criminal investigations discovered a multi-billion dollar illegal operation. Development of Banking in Hong Kong In 1985, the directors of the Overseas Trust Bank Ltd. declared the company to be insolvent, with its subsidiary the Hong Kong Industrial and Commercial Bank Ltd. The government acquired the banks again through the Exchange Fund, because the government remains committed to its policy of safeguarding the exchange rate of Hong Kong dollar and the stability and reputation of the banking system”. However, the Legislative Council criticised the use of public funds to rescue mismanaged and fraudulent private sector organization. Development of Banking in Hong Kong Banking Ordinance 1986 The posts of Commissioner of Banking and Commission of DTCs were merged into one. (i) The Commissioner of Banking is charged with the general duty of promoting sound business practices through improved prudential supervision of the banking sector. (ii) The Commissioner may issue guidelines on business practices to be followed by the authorized institutions. Development of Banking in Hong Kong In 1989, the broader activities of the deposittaking companies needed recognising and the Banking Commissioner upgraded the status of licensed deposit-taking companies to restricted licensed banks. The Banking (Amendment) Ordinance 1999 brought Hong Kong's banking supervision fully in line with the Basel Committee's core principles for effective banking supervision. Money Supply in China and Hong Kong RMB’million, HKD’million, (June 2004) Money Supply China M0 Currency in 19,017,890 circulation M1 88,627,450 M2 236,242,280 M3 (includes FC Deposits) 236,242,280 + 11,949,070 Hong Kong 146,332 385,100 HKD 62,538 FC 2,068,749 HKD 1,759,281 FC 2,083,914 HKD 1,792,552 FC Money Supply in China and Hong Kong Definitions RMB Money Supply in China M0 Currency in circulation M1= M0 + Demand Deposits M2 = M1 + Time Deposits + Savings Deposits + Other Deposits Money Supply in China and Hong Kong Definitions Money Supply in Hong Kong M0 = Notes and coins in circulation M1 = M0 + Demand deposits with licensed banks M2 = M1 + Savings and Time deposits with licensed banks + NCD issued by banks held outside the monetary sector M3 = M2 + Deposits with RLB and DTC + NCD issued by RLB and DTC held outside the monetary sector Distribution of Deposits in Hong Kong HK$’million (June 2004) Authorized HKD Foreign Total Institutions Currency LB: Demand 249,754 62,538 312,292 Deposits LB: Savings 951,660 370,201 1,321,861 Deposits LB: Time Deposits 666,443 1,222,897 1,889,340 Distribution of Deposits in Hong Kong HK$’million (June 2004) Authorized Institutions RLB Deposits HKD 11,475 Foreign Currency 29,870 DTC Deposits 3,095 1,573 Total 41,345 4,668