HAVE THE BANKS STOPPED WOBBLING?
The traditional Hong Kong solution for banks and DTCs (deposit-taking companies) that get into trouble is for either the HongkongBank or Standard Chartered Bank to issue a public statement of total support for the ailing institution and then to provide it with credit lines, which the government underwrites. The local community has considerable faith in both note-issuing banks, and a demonstration of support from either of them is usually enough to quell a run.
Times have changed. Runs are no longer a crisis created by queues of anxious depositors. A liquidity crisis in contemporary Hong Kong is almost entirely a matter of confidence on the money market, with the international banks ready to cut credit lines at the earliest signs of trouble.
The British Crown Colony has embarked on a transition that will lead by 1997 to the replacement of its colonial institutions, as sovereignty returns to the People's Republic of China. The local banking system, together with the British colonial administration, has started to search for new techniques to ensure financial stability.
Not only must there be a better regulatory framework; there must be formulas to involve Beijing's Bank of China and its 12 associated sister banks in stablization operations.