THE speed of growth in Hong Kong's capital markets could become a cause for concern, according to Chris Foley, senior vice-president at Bank of America. Sitting by a dealing room which has just doubled in size and still has the smell of wet paint hanging over it, Mr Foley said he was very much aware of the problems that had sprung from explosive growth in Tokyo's banks, and warned that local bankers would have to keep a careful watch on developments there. In the areas of derivatives and financial futures trading in particular, rapid staff turnover on the current Hong Kong ''money-go-round'' posed risks, he said. ''There have certainly been losses in Tokyo,'' he said. ''Prudent bankers and central bankers everywhere are concerned about controlling risk.'' In Tokyo, there is a growing problem caused by derivative trading in off-balance-sheet risk, set up by employees who have subsequently left. Back-room operations have sometimes got out of sync, and risk has not been hedged or laid off. Now, time bombs are starting to explode. ''The Fed [US Federal Reserve] is on the record expressing concern; the Bank of England is concerned,'' Mr Foley said, responding to a question about Hong Kong's own survey of derivative trading. ''The notional principal amounts, the numbers, are just staggering. These are complicated products and you have to be sure you understand the risks at both the trading end and in the back-office,'' he said. At Bank of America, most of the derivatives staff on the 85-strong dealing team came from Security Pacific Bank - now Bank of America Asia. Mr Foley has not been making much effort to expand that team. ''This is a sector which requires very sophisticated traders. In many cases, there are not that many qualified people,'' he said, adding that his expansion was totally ''customer driven''. Mr Foley makes another comparison between Hong Kong and Tokyo - one which may be even less comfortable. ''Tokyo was the boom city of the 1980s. Everyone was expanding there as fast as they could - that's where the volume was,'' he said. ''Now, it seems like everyone is cutting back.'' Hong Kong's spectacular growth would only continue as long as the economy continued to prosper, he added. Bank of America's dealing operations in the territory focus on major currencies along with regionals such as the Malaysian ringgit, Thai baht and Indonesian rupiah. The bank also has an active night team which executes customer deals on European currencies and markets. Bank of America in the US has just founded its ''Section 20'' subsidiary, which will allow the bank to become involved in the US corporate debt market. Accordingly, Mr Foley would like to develop a capital-market presence in Hong Kong and the rest of Asia.