Hong Kong bank run

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Nothing inspires fear so much as a good bank run. Tanking share prices, vanishing Wall Street firms, central bankers hosing the global economy with liquidity – all pale beside the sight of hordes of frightened depositors trying to withdraw their cash from their local bank.

Although it is undeniably a sign of the times, investors should be wary of attaching too much importance to the run on Bank of East Asia, Hong Kong’s number five lender by assets and the first to sustain a bank run since the gory days of the Asian financial crisis in 1997. First, as a tiny crucible, Hong Kong thrives on panic and rumour-mongering. This is a city where people queue round the block for anything from shares to plastic Hello Kitties. Second, the financial system is pretty robust. Banks have far more deposits than they can lend – system-wide, the local currency loan to deposit ratio is 83 per cent – and capital adequacy ratios are comfortably in excess of 14 per cent. Deposits of up to almost $13,000 are covered under the territory’s banking regulations.

Most of all, though, depositors can be sure that the territory’s powers will do their damnedest to prevent a bank collapse. Tycoons, including the local answer to Warren Buffet, Li Ka-shing, this week dived in to buy BEA shares – helping to lift the share price on Thursday. Hong Kong’s bold stock market intervention in 1998 made mincemeat of speculators trying to break the currency peg and there is little doubt it would move with similar speed if required again.

Investors are in two minds how to interpret the street panic. Credit default swaps shot up but the level of shorting on BEA stock was actually below “normal” levels. In jittery times, when two investment banks disappear over the course of a weekend and the casualty list is growing, nothing can be ruled out. But the chances of a Hong Kong bank arriving on that list any time soon are still relatively slim.

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