Jake's View
PUBLISHED : Thursday, 09 January, 2014, 1:07am
UPDATED : Thursday, 09 January, 2014, 1:07am

Hong Kong fails to avert a collapse in common sense

Line from talk shop on governments spotting problems at ailing banks is just as hard to swallow as the name, but our regulators can't get enough


Jake van der Kamp is a native of the Netherlands, a Canadian citizen, and a longtime Hong Kong resident. He started as a South China Morning Post business reporter in 1978, soon made a career change to investment analyst and returned to the newspaper in 1998 as a financial columnist.

Under this new international regime, all major markets are required to empower regulators to handle big financial firms' failures speedily without resorting to taxpayers' money.

SCMP, Jan 8

Jargon first. "This new international regime" stands for the Group of Twenty Financial Stability Board Key Attributes of Effective Resolution Regimes for Financial Institutions. We'll make that the GTFSBKAERRFI.

There. Got that? What it all says is that a Europe-centred government talk shop, the G20, believes its members have the insight and ability to stop the rot in troubled financial institutions before public bailouts are required. It will therefore assume the powers to do it and we in Hong Kong must do it, too.

Must, you hear. Our report termed it as "required" and the government press release called it "incumbent on Hong Kong". The Monetary Authority apparently raised its hand some years ago for this Financial Stability Board, although Hong Kong is not a member of the G20.

It's amazing how fast you can be signed up to all sorts of things by going to one of these government talk shops. You happen to drop in to a discussion group, someone calls for a vote, and suddenly your whole country is committed to whatever do-gooder cause has just been approved.

Did we sign a treaty somewhere? I don't think so. On what legal basis is this binding commitment then founded?

The answer, of course, is that the legislative amendments required by the GTFSBKAERRFI will give the Monetary Authority, the Securities and Futures Commission and the Insurance Authority more powers and they all like that. Yum-yum, more please.

There is your legal basis for why we have no choice in the matter. Let's hear it for legality.

GTFSBKAERRFI is just another bureaucratic conceit … it won’t get the taxpayers off the hook

Things wouldn't be so bad, of course, if the GTFSBKAERRFI were a good idea. But it's not. It's just another bureaucratic conceit. The objective is to fix things at big banks quickly without "resorting to taxpayers' money", as our report put it.

The reality is that it will cement government's role as a committed rescuer, with taxpayers' money, of reckless financial speculators who will then feel themselves all the more free to play dicey games with money that the public has entrusted to them.

Find me the day that a government agency has spotted trouble in any financial institution before other financiers have done so and long taken themselves out of the way. It simply doesn't happen.

We had one of the best examples of it right here in Hong Kong 30 years ago when seven banks foundered after their Malaysian owners raided the Hong Kong deposits to support their failed companies back home.

Even the depositors knew and had staged runs on these banks for more than a week while the banking commissioner was still waving his hands and complaining of ignorant or evil-intentioned elements threatening sound banks.

Ironically, the GTFSBKAERRFI consultation paper that our bureaucrats have just published mentions this very incident as a reason for signing up. How they come to it is beyond me. The people that are routinely the last to know will now by legislative fiat be made the first to know. Uh-huh.

Listen, you duffers. This won't get the taxpayers off the hook. It will just fix the taxpayers on that hook more firmly.

Regulators are lawyers and administrators. In financial matters they don't see big trouble coming in time to stop it. They never have. They always react long after the fact.

By the time that any of the three agencies sponsoring this new legislation uses it to intervene in any bank, its problems will already be insoluble within the existing base of shareholder equity and committed funding.

Aside from fraud - and we have already laws against fraud - or general financial collapse, against which it is invariably too late to do much anyway, the bank's real underlying problems are unlikely to get much worse at that point. Other bankers will already know and won't advance it more money. All that will happen is that the problems will be revealed publicly.

But the moment that the legislation is then invoked, all the creditors and depositors will turn to government to have their losses made good. Other banks will then also reduce their bids for the troubled bank and demand wide-ranging government guarantees.

And our government will give in every time.



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