HKCEE Macroeconomics

Chapter 3: Banking and Financial
Systems
By Mr. LAU san-fat CH3-Banking & Financial Systems 1

Function & Types of Banks


Banks act as financial intermediaries that accept deposits and channel them into productive investment.
Types of banks



Central bank
Commercial banks
Merchant banks
By Mr. LAU san-fat CH3-Banking & Financial Systems 2

Functions of a Central Bank
1.
Issuing note
2.
Acting as the lender of last resort
3.
Acting as the government banker
4.
Acting as a clearing house
5.
Supervising private banking activities
6.
Carrying out monetary policies
 via varying the discount rate
By Mr. LAU san-fat CH3-Banking & Financial Systems 3

Central Bank Functions in HK


Lender of last resort

The Exchange Fund/HK Monetary Authority
Note-issuing

The Hong Kong and Shanghai Banking
Corporation Ltd., the Standard Chartered
Bank, the Bank of China, and the Hong
Kong Monetary Authority.
4 By Mr. LAU san-fat CH3-Banking & Financial Systems

Central Bank Functions in HK


Government bank



The Hong Kong and Shanghai Banking
Corporation Ltd. & the Bank of China
The Treasury
The Hong Kong Monetary Authority
Bank of central clearance

The Hong Kong Interbank Clearing Ltd.
By Mr. LAU san-fat CH3-Banking & Financial Systems 5

Central Bank Functions in HK


Banking supervision

The Hong Kong Monetary Authority
Execution of monetary policies


Since the abolition of the interest rate agreement among banks, monetary policies in HK are restricted.
The HK Monetary Authority could mainly aim at stabilizing the exchange rate & maintaining the linked exchange rate system.
By Mr. LAU san-fat CH3-Banking & Financial Systems 6

Services of Commercial Banks
1.
Taking deposits
 Demand deposits, savings deposits, time deposits & negotiable certificates of deposits
2.
Granting loans
 Fixed loans and overdraft
3.
Financing imports or export trade
 By issuing letters of credit (L/C) & discounting bills of exchange
By Mr. LAU san-fat CH3-Banking & Financial Systems 7

Services of Commercial Banks
4.
Other services
 Issuing gift cheques and cashier ’ s order or bank draft
 Providing credit cards & mortgage
 Providing ATM machines services
 Sending remittance overseas
 Dealing in foreign currencies, gold & shares
 Offering insurance services
By Mr. LAU san-fat CH3-Banking & Financial Systems 8

Services of Merchant Banks
1.
Taking large-amount deposits from companies & investors
2.
Providing financial advisory service to companies
3.
Underwriting new shares after inviting public subscription
4.
Providing (retirement) fund management services
5.
Arranging syndicated loans
By Mr. LAU san-fat CH3-Banking & Financial Systems 9

The Three-tier System of
Deposit-taking Institutions
1.
Licensed banks (lb)
 Examples: the Hong Kong and Shanghai
Banking Corporation Ltd., and the
Standard Chartered Bank
2.
Restricted licensed banks (rlb)
 Example: the Citicorp International Ltd.
3.
Deposit-taking companies (dtc)
 The JCG Finance Company Ltd.
By Mr. LAU san-fat CH3-Banking & Financial Systems 10

The Three-tier System of
Deposit-taking Institutions
Min. paid-up capital
Types of deposits
Min. amount of deposits
LB
$150 million
Any amount
RLB
$100 million
All types Time deposits &
NCDs
$500 000
DTC
$25 million
Time deposits
& NCDs
$100 000
Maturity of deposit
By Mr. LAU san-fat
Any maturity
Any maturity Min. 3 months
CH3-Banking & Financial Systems 11

Financial Markets in HK
 Major financial markets:
1.
The Money Market (short-term liquid assets)
2.
The Capital Market (shares & bonds)
3.
The Foreign Exchange Market
4.
The Futures Market
5.
The Gold Market
 It is supervised by the Securities and
Futures Commission of Hong Kong with the
Securities and Futures Ordinance.
By Mr. LAU san-fat CH3-Banking & Financial Systems 12

Factors Turning HK into an
International Financial Centre
1.
Favourable geographical position
2.
Favourable time zone location
3.
Well-developed financial services
4.
Advanced telecommunications facilities
5.
Absence of exchange control
6.
Favourable government policies (laissezfaire policy & low tax rates)
7.
Increasing economic links with the Mainland
By Mr. LAU san-fat CH3-Banking & Financial Systems 13

Contributions of a Financial
Centre to HK Economy
1.
Speeding up economic growth
2.
Increasing economic links with the rest of the world
3.
Increasing employment opportunities
By Mr. LAU san-fat CH3-Banking & Financial Systems 14