YEARS AGO, WHILE working in the stockbroking arm of a local bank that had just appointed a new managing director, I happened to be sitting near the stage at the bank's annual dinner, a big banquet with at least 50 tables. One of the features of the night was the Miss --- ---- Bank Contest with three shows, evening wear, swimwear and casual wear (I shall not give you the bank's name). When it was announced, the new MD hiked his chair 180 degrees round at the head table to make sure he had a full view of the stage and, as he did so, one of his juniors leaned over to me and whispered, 'Well, you know, when they said he was going to go up and down through the bank, they didn't mean the accounts.' It was also about the time that a friend who was senior in one of the local armoured car companies was asked by a client bank to pick up a shipment of gold from the airport, take it to town and, at certain street corner, look for a man with a pink shirt and some other identifying marks, who would provide directions on where to take it next. 'But why not take it straight to your head office as we always do?' said my friend. 'Bit difficult,' came the reply. 'We have the auditors in right now and they don't know that we deal in this stuff.' Not too long afterwards, and perhaps inevitably so, several small banks went bust. This may or may not have been associated with the fact that most of them had close Malaysian connections and Malaysia was going through a bad patch at the time. If it strikes you that the Malaysian interests may have found it convenient to have a source of funds in Hong Kong, well, it struck me too. It seems to have struck some of our regulators a little tardily, however. At least one of them was still fulminating about irresponsible attacks on banks while depositors were lining up outside branches of those banks in fear that white knights would not be found for them. Fortunately, they were. Thus when William Ryback, the Hong Kong Monetary Authority's new deputy chief executive in charge of bank supervision, says, 'Sure, I have to get my mind around my own rules and how do you apply the way things work here in Hong Kong to my own paradigm,' he may be glad that he did not take the job 20 years ago. His lot would have been paradigm shock. But things have changed. The mindset he will now encounter is much more congenial to his way of thinking in his previous job as a bank regulator in the United States. We currently have easily the soundest financial system in all of Asia, thanks in part to the efforts of the HKMA in more recent years. When the biggest worry about banks in a difficult period over the past three years was credit card usage (never more than 3.3 per cent of total lending and now declining), Mr Ryback may actually find that he does not have a huge task carved out for him. This may give him time for longer lunches, something about which he expressed reservations: 'It is very different here than it is in the US. If you even go out to lunch with a bank, you get fired or you get prosecuted and put in jail.' Rest at ease, sir. You do not want to be guest of honour at a big banquet with ... ahem ... entertainment to follow but to sit across from your quarry at lunch here is not tantamount to making yourself the meal on his plate. We do these things in Hong Kong with more finesse than in New York. It is not quite so antagonistic an environment. And here are a few general observations you may find of use. Think of the smaller banks you supervise as glorified pawnshops. They are and it has stood them in good stead. Do not inquire too closely into all the operations of banks that have formal mainland connections. They may embarrass you from time to time and you will not have much warning. Their troubles, however, are more the Bank of China's responsibility than yours. Pass the buck. Where certain naughty practices are concerned, for instance cleaned as opposed to clean money, speak big in general terms but carry a soft stick. We do not want to draw too much attention to this sort of thing, do we? It may give Hong Kong a bad name. Other places are much worse and our laundry services are not obtrusive ones. Most of all, your immediate predecessor was big on introducing deposit insurance here. Do us a favour and drop the idea, please. Hong Kong is particularly susceptible to the moral hazard of this sort of scheme. Deposit insurance will not be necessary if you do your job properly and, if you do not do it properly, deposit insurance will not save us.