Hong Kong is not only the major financial center of East Asia, it has one of the highest concentrations of banking institutions in the world. Of the world’s 100 largest banks, 71 maintain operations in Hong Kong, with the year 2004 seeing 133 licensed banks, 42 restricted license banks, and 36 deposit-taking companies in operation. Hong Kong is also home to local representative offices of 85 overseas banks, examples of note being American Express Bank Limited, Australia and New Zealand Banking Group Limited, the Bank of India, Barclays Bank Plc, BNP Paribas, JPMorgan Chase Bank, the Royal Bank of Scotland Plc, and Wells Fargo Bank. Authorized “money brokers” in Hong Kong include Bloomberg Tradebook Hong Kong Limited, EBS Service Company Limited, Reuters Transaction Services Limited, SMBC Capital Markets Limited, and Tradition (Asia) Limited.

Hong Kong itself maintains a three-tier system of deposit-taking institutions, those being: licensed banks, restricted license banks, and deposit-taking companies. The central banking institution of Hong Kong is the Hong Kong Monetary Authority (HKMA), which is responsible for the regulation of all Hong Kong banks. Founded as a government authority in April of 1993, the HKMA came about through the consolidation of the Office of the Exchange Fund and the Office of the Commissioner of Banking. The HKMA’s primary objective is to ensure the stability of the Hong Kong dollar, as well as to maintain the overall stability of the banking system. The HKMA is also responsible for the issuance of banknotes and the promotion of the general integrity and development of the financial system. The HKMA reports directly to the Financial Secretary of Hong Kong and is headed by Chairman Joseph Yam. It has a current base borrowing rate and base deposit rate of 6.75%.

The currency of Hong Kong is the Hong Kong Dollar (HKD), which has had a fixed exchange rate with the United States since the Black Saturday crisis of 1983. The HKMA is integral to overseeing this fixed exchange rate process, which uses an Interest Rate Adjustment Mechanism and a currency board system to ensure that the HKD trades within a range of $7.75 and $7.85 Hong Kong dollars to US$1. If the HKD and USD exchange rate falls below 7.80, the HKMA authorizes banks to convert USD for HKD, effectively increasing HKD supply and forcing the exchange rate to return to a rate of 7.80. If the exchange rate rises higher than this, banks are authorized to convert HKDs for USDs. In practice, the exchange rate tends to range from 7.75 to 7.85. As of May 2008, the official exchange rate was, indeed, listed as HKD$7.80 to US$1.00. Overall, the HKD is impressive for a number of reasons, not the least of which is its backing by one of the largest foreign exchange reserves in the world—an amount several times larger than the amount of money in circulation.

Another notable Hong Kong-based financial institution is the Hongkong and Shanghai Banking Corporation Limited, a wholly owned subsidiary (and indeed the founding member) of the HSBC group. Established in 1865 as the HongkongBank, the HSBC is not only traded on several stock exchanges (as HSBC Holdings plc.), it is diverse and influential in its own business and financial activities. Today’s HSBC engages in everything from traditional personal financial and commercial banking activities (otherwise known as “High Street” roles) to major corporate and investment banking roles. HSBC is not only the largest bank in Hong Kong, but in the entire Asian Pacific region. Maintaining a network of 220 branches throughout Hong Kong and over 600 offices in 20 Asian Pacific countries, HSBC also owns numerous HSBC banks foreign countries. HSBC is one of only three commercial banks in Hong Kong authorized to issue banknotes (the other two being the Bank of China and Standard Chartered Bank, Hong Kong. HSBC, however, is the most prolific issuer, representing 62.9% of all HKD notes in circulation.

HSBC’s involvement in mainland China’s financial activities is significant, the group having established Shanghai branches in the 19th century, maintaining a continuing presence ever since (barring the period of time during the Japanese occupation). In 2004, HSBC paid US$1.75 billion to acquire a nearly 20% stake in China’s Bank of Communications (based in Shanghai). At the time, the Bank of Communications was China’s 5th largest bank, and HSBC’s investment was eight times larger than any other foreign investment in a Chinese bank in history. HSBC has additional stakes in the Bank of Shanghai and Ping An Insurance.

Hong Kong’s other major bank (as well as its 2nd largest commercial banking group in terms of assets and customer deposits) is the aforementioned Bank of China (Hong Kong) Limited (BOCHK). BOCHK was established in 2001, but already has more than 300 branches throughout Hong Kong (the largest number of branches in the territory), with 2003 total assets of HKD$763 billion. BOCHK is a founder of the JETCO ATM and payment system (currently having an estimated 450 automatic teller machines throughout Hong Kong), and is a designated clearing bank for transactions involving currency from mainland China (renminbi.). BOCHK offers a full range of financial services to both corporate and retail customers, but is primarily known for its interest-income business; that is, the bank takes deposits from retail customers, which it then uses for loans to corporate customers. BOCHK has recently been moving into other non-interest-income areas, however, such as personal loans, wealth management, and other financial services. Although BOCHK is legally separate from its parent bank (Bank of China), the two corporations maintain close relationships in terms of management, administration, and strategic business cooperation. BOCHK’s physical headquarters lay in the Bank of China Tower, designed by I.M. Pei—a building that holds the distinction of being the first building outside North America to break the 1,000 foot mark.