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

2. 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

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

4. 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.
By Mr. LAU san-fat
CH3-Banking & Financial Systems

5. 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

6. 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

7. Services of Commercial Banks
Taking deposits
Demand deposits, savings deposits, time deposits & negotiable certificates of deposits
Granting loans
Fixed loans and overdraft
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

8. 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

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

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

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

12. Financial Markets in HK
Major financial markets:
The Money Market (short-term liquid assets)
The Capital Market (shares & bonds)
The Foreign Exchange Market
The Futures Market
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

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

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