Interest Rate Regulation and Competition in the Banking Industry in Hong Kong Harvard Case Solution & Analysis

Interest Rate Regulation and Competition in the Banking Industry in Hong Kong Case Solution

The note inquires about the effects of the interest rate rules on banks in Hong Kong, along with on depositors. With the interest rate rules, the Hong Kong Association of Banks acted as a cartel to set the maximum interest rate of specific Hong Kong dollar deposits. Charging nearly uniform interest rates, banks in Hong Kong relied on non price competition to attract deposits. After deregulation of interest rates in the 1990s and 2000s, banks are free to set deposit rates according to market conditions and their own strategies.

Ample liquidity and the sluggish loan demand after the Asian financial crisis veiled the potential price competition among banks despite the general expectation of banks offering higher rates to compete for deposits. The results in this case pave the way for examining competition in the banking industry.

PUBLICATION DATE: July 23, 2004 PRODUCT #: HKU340-PDF-ENG

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