Commentary

China Watch

Forum Digests

Columnists

Letters

No need to panic over HK banks

By Hong Liang (China Daily)
Updated: 2008-10-07 07:43

Jittery depositors triggering a rush of withdrawal at Bank of East Asia in Hong Kong before the holiday break have sounded the alarm that the ripple of the US financial crisis is threatening to wash across the capital markets of Asia onto the serene enclave of the commercial banks.

Quick responses from the bank and the Hong Kong government, backed by their respective resources, dissipated the threat of a full-scale bank run that could have shaken the foundation of the Hong Kong financial system and smeared its status as one of the world's leading financial centers.

The bank rightly blamed rumors of its exposure to the US credit crisis in general, and the now defunct US investment bank Lehman Brothers in particular, for causing excessive concern among its many depositors. To calm depositors' nerve, the bank disclosed that its exposure to Lehman amounted to HK$422.8 million ($54.2 million), which was an insignificant sum compared to the bank's multi-billion dollar total assets.

Dismissing the rumors surrounding Bank of East Asia as "unfounded and malicious", Hong Kong financial secretary John Tsang assured that the bank's finances were sound and the government would lend its full support if necessary.

Also denouncing the rumors, Hong Kong Monetary Authority (HKMA) chief Joseph Yam said that the bank has sufficient funds to meet the needs of its customers, noting that the bank's capital adequacy ratio is twice as high as the minimum requirement.

Some critics argued that the government should have required banks to publicly disclose the extent of their exposure to the US credit crisis that has brought down a major investment bank and undermined the financial structures of numerous other institutions. These critics pointed to the example set by the mainland regulatory authorities which were reported to have ordered the major State-owned banks to report their exposures to Lehman and financially troubled American Insurance Group.

Had the HKMA done so, it would have removed much of the market uncertainties that were apparently exploited by people of ill intentions to instigate the latest bank run by spreading false rumors, the critics surmised. But this argument has ignored the fundamental differences between the regulatory environments of Hong Kong and the mainland.

In Hong Kong where all banks are privately owned, regulators exercise greater care in ensuring fairness to all in the deliberation of any new measures. Of course, HKMA is keeping a close tab on the exposure of each and every individual bank to the US crisis. But as an unnamed monetary official confided to the South China Morning Post, public disclosure of such information could "invite unnecessary comparisons".

Such comparisons would not only be "unnecessary" but also unfair to those banks which have relatively larger international operations. What's more, the majority of the public would not be reading those figures in the context of the individual bank's total asset. They could be misled by those figures into thinking that the bank with a smaller exposure must be a better managed bank than the one with a bigger exposure.

Whether the publication of such information could have quelled public concern raised by the spread of the US credit crisis is open to debate. But there is no reason for depositors to doubt the bank regulator's assurance that their money is in safe hands. Not only that, their deposits are doubly protected by the well-funded Deposit Protection Scheme.

Latest reports have shown that the spread of the US credit crisis has prompted various European governments to take precautionary measures to calm the nerve of depositors. The German government, for instance, has moved to guarantee all private savings accounts in the country. Perhaps the Hong Kong government should consider more comprehensive measures to bolster depositors' confidence in the solidity of the domestic banking system.

E-mail: jamesleung@chinadaily.com.cn

(China Daily 10/07/2008 page8)