They have imposed rigidities and inefficiencies in the setting of deposit rates and have inhibited the development of new products on the liabilities side of the balance sheet. The removal of long-standing controls is not however an easy process, and may bring with it certain risks and drawbacks. From the banks’ point of view, the obvious problem is that they may have to pay higher interest rates, or interest for the first time, on the previously regulated deposits. The effect on margins will be exacerbated if deregulation leads to a price war with banks aggressively bidding for deposits. At this point, the banking regulator may also become concerned if it appears that the banks are neglecting the management of their interest rate risk and liquidity risk. This is obviously something that is a potential concern with the impending deregulation. But the banks have had plenty of time to prepare. Moreover, the current excess liquidity in the system means that the incentive to bid too aggressively for new deposits should be reduced. Having said that, some banks will no doubt see deregulation as an opportunity to expand their customer base, and will price their deposits with this objective in mind. This brings me on to the impact of the deregulation for consumers. There has perhaps been too much of a tendency in some quarters to see deregulation as something that would bring benefits for all. This was not the view of the HKMA.
To do otherwise may in the long-term be inconsistent with the objective of creating shareholder value. What this means in practice is that in imposing new charges, banks need to be sensitive to the impact on their customers and particularly on the more vulnerable members of the community. It is important to offer customers options for how they can access banking services and at what cost, and to provide them with information about these options and the associated charges. I am pleased to say that the banks that have so far announced new charging policies have borne these considerations in mind. We  2  BIS Review 29/2001  intend to give this further underpinning through revisions to the Code of Banking Practice that will lay particular stress on the need for transparency in the setting of charges. There have been calls from some quarters in Hong Kong that the HKMA should regulate banks’ fees and charges. This is not something that we want to get into. The only role for the HKMA would be if it appeared that the banks were engaging in collusive, anti-competitive practices in their charging policies. There is no evidence of this as yet, and given the way in which banks compete in other business areas, the risk of collusion seems quite low. Indeed, a number of banks have already said that they will not impose new charges, for the time being at least. Nonetheless, this is something that we will keep an eye on.