Financial Strains and Banking Instability

  • Y. C. Jao


In previous chapters, the growth and structure of Hong Kong’s banking industry, and its role in the supply of money and creation of credit have been analysed. The general conclusion is that the growth of the banking industry has been most impressive, and that the banking system as a whole has discharged its most important function — the supply of money and provision of credit — reasonably well. It must not be supposed however that this process has been a smooth and steady one. In fact, since the ’sixties the strains and stresses within the banking system that were accumulated earlier but hitherto hidden largely from the public have become more and more evident. The most dramatic expression of such strains was the eruption of the banking crisis in 1965. There were however other incidents which, though less serious than the 1965 crisis, constituted nevertheless sufficient evidence of many managerial and structural deficiencies. A review of these events therefore serves as a salutary reminder that behind the façade of rapid growth the banking sector is highly vulnerable to internal strains and external shocks.


Real Estate Banking System Money Supply Banking Sector Financial Strain 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Notes and References

  1. 1.
    S. C. Chen, ‘Banking Liquidity in Hong Kong’, Far Eastern Economic Review (July 6 1961) p. 27.Google Scholar
  2. 3.
    S. C. Chen, ‘Anxiety in the Banks’, Far Eastern Economic Review (26 May 1960) pp. 1031–2Google Scholar
  3. Y. M. Lin, Hsiang-kang yin-hangwen-ti (The Banking Problems of Hong Kong) (Hong Kong, 1962) PP. 5–7.Google Scholar
  4. 10.
    Nigel Ruscoe, ‘How Wide A Spread?’ Far Eastern Economic Review (14 Dec 1961) p. 537. The author commented ‘since the actual spread before the “war” broke out was at the very least 2 per cent and much of the time was probably nearer to 3 per cent, there is some case for accepting the non-authorized banks’ position.’Google Scholar
  5. 11.
    S. C. Chen, ‘Calling A Truce’, Far Eastern Economic Review (30 July 1964) pp. 213–16.Google Scholar
  6. 12.
    H. J. Tomkins, Report on the Hong Kong Banking System and Recommendations for the Replacement of the Banking Ordinance, 1948 (Hong Kong, 1962)Google Scholar
  7. D. Williams, ‘Hong Kong Banking’ Three Banks Review (Sept 1963) pp. 26–45.Google Scholar
  8. 13.
    J. O. Ronan, ‘Hong Kong’s New Banking Legislation’ Bankers’ Magazine (Mar 1965) pp. 187–91.Google Scholar
  9. 14.
    Maurice Collis, Wayfoong, The Hong Kong & Shanghai Banking Corporation (London, 1965) pp. 32–3. The effect of the Overend affair on the Bank of England was described by Walter Bagehot in Chapter 7 of his classic Lombard Street.Google Scholar
  10. 15.
    See G. Davies, ‘Hong Kong Banking After the Crisis’, The Banker (Apr 1965) p. 246.Google Scholar
  11. 16.
    The literature on building cycles is too vast to be enumerated. Two articles representing different approaches may be cited: A. F. Burns, ‘Long Cycles in Residential Construction’, in Economic Essays in Honor of Wesley Clair Mitchell (New York, 1935) pp. 63–104Google Scholar
  12. J. M. Guttentag, ‘The Short Cycle in Residential Construction, 1946–59’. American Economic Review (June 1961) pp. 275–98.Google Scholar
  13. 20.
    J. S. Duesenberry, Business Cycles & Economic Growth (New York, 1958) pp. 158–64.Google Scholar
  14. 21.
    It has been suggested that 80 per cent of building mortgages are financed by commercial banks. See Ronald Li, ‘Financing of Hong Kong’s Building Industry’, Hong Kong Manager (Mar/Apr, 1970) pp. 11–15.Google Scholar
  15. 23.
    M. Friedman and A. J. Schwartz, A Monetary History of the United States, 1867–1960 (New York, 1963) pp. 332–53. The authors suggest that ex post deterioration of bank portfolios was a more important factor in the American banking crisis of 1929–33.Google Scholar
  16. 25.
    A. G. Hart and P. B. Kenen, Money, Debt and Economic Activity, 3rd ed (Englewood Cliffs, N.J., 1961) pp. 235–237Google Scholar
  17. 29.
    P.H.M. Jones ‘Hong Kong, Year of Rethinking’, in Banking in Asia, Far Eastern Economic Review, (14 April 1966) pp, 68–9.Google Scholar
  18. 30.
    F. Evans, ‘Silver Lining’, Far Eastern Economic Review (15 Apr 1965) p. 42.Google Scholar

Copyright information

© Y. C. Jao 1974

Authors and Affiliations

  • Y. C. Jao
    • 1
  1. 1.University of Hong kongChina

Personalised recommendations