Our Ref. : G12/72C

14 July 1999

The Chief Executive
All authorized institutions

Dear Sir / Madam,

Policy Response to the Banking Sector Consultancy Study

Following the three-month consultation exercise earlier this year on the recommendations from the Banking Sector Consultancy Study, the HKMA has developed a package of policy initiatives as a response to the consultants' recommendations.

The package of policy initiatives has now been endorsed by the Government and I have pleasure in enclosing a booklet detailing the policy initiatives for your reference. During the course of the consultation exercise, the HKMA has received a number of comments on the consultants' recommendations. These comments have provided us with additional views and points to consider which helped us in arriving at our final package of policy initiatives. Therefore, I would like to take this opportunity to offer my thanks for any views and comments that you may have contributed.

The main theme of the package of policy initiatives is to encourage market liberalisation and enhance the level of competitiveness in the sector. At the same time, we will also be working to strengthen the banking infrastructure to enhance the safety and soundness of the system. The HKMA considers that carefully planned liberalisation of the financial markets is necessary if Hong Kong is to maintain and consolidate its position as an international financial centre. Greater competition promotes efficiency and innovation in the market. However, we also recognise that it is important to enhance the safety and soundness of the banking sector at the same time so that the benefits of increased competition and greater efficiency can be fully realised.

I believe that the package provides the right mix of initiatives to increase competition and measures to improve safety and soundness of the system. These will provide for the healthy development of the sector as we head into the new millennium.

Whilst some of the proposals will implemented as soon as practicable, others such as enhancing depositor protection and simplifying the three-tier licensing system will involve further study and consideration before more concrete implementation plans can be developed. Full consultation with the industry on the various proposals will be conducted in due course.

Encl.