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52-589: Far East Bank was a bank in Hong Kong which has since merged into Bank of East Asia . Far East Bank was founded in 1959 by Mr. Deacon Chiu ( 邱德根 ), the founder of Far East Holdings. It started as a qianzhuang (native bank) in Tsuen Wan by collecting deposits from farmers . In the 1960s, it suffered heavily from heavy lending to property sector and fraud. In 1965, bank runs occurred in several small and medium banks in Hong Kong, which eventually triggered

104-451: A self-fulfilling prophecy . Indeed, Robert K. Merton , who coined the term self-fulfilling prophecy , mentioned bank runs as a prime example of the concept in his book Social Theory and Social Structure . Mervyn King , governor of the Bank of England, once noted that it may not be rational to start a bank run, but it is rational to participate in one once it had started. A bank run is

156-514: A Chinese, family-run bank but also adopting modern accounting and banking methods, came from Kan Tong-po (簡東浦). Kan had the necessary banking background but needed the financial support of the Li brothers ( Li Koon-chun and Li Tse-fong ) and the sociopolitical support of Sir Shouson Chow , who would become co-founders, along with several other prominent local Hong Kong Chinese businessmen, including Fung Ping Shan (馮平山). While Kan later sold his stake in

208-531: A bank reorganization. Bank runs first appeared as a part of cycles of credit expansion and its subsequent contraction. From the 16th century onwards, English goldsmiths issuing promissory notes suffered severe failures due to bad harvests, plummeting parts of the country into famine and unrest. Other examples are the Dutch tulip manias (1634–37), the British South Sea Bubble (1717–19),

260-431: A crisis is triggered by unsustainable fiscal policies, expansionary fiscal policies are typically used. In crises of liquidity and solvency, central banks can provide liquidity to support illiquid banks. Depositor protection can help restore confidence, although it tends to be costly and does not necessarily speed up economic recovery. Intervention is often delayed in the hope that recovery will occur, and this delay increases

312-440: A declaration from the court that these placements were passed by BEA for "an improper purpose" and looked for an order requiring BEA to lift the contractual restrictions that would prevent SMBC and Caixa, another strategic investor on BEA, from reducing their stakes on BEA. In response, BEA applied to have Elliott's petition against them struck out. This case was heard by Mr Justice Jonathan Harris from 17 to 19 July 2017. During

364-620: A key restriction on foreign banks' retail business in the country. The bank issued the debit cards jointly with China UnionPay , the country's only bankcard network operator. The company claimed that the launch of debit cards would help attract retail banking customers by giving them greater convenience in accessing their deposits. In addition, it offers direct Alipay payment support and issues credit cards (RMB-denominated UnionPay credit cards in 2008, and more recently Visa-branded US dollar-denominated cards in April 2011). BEA currently operate one of

416-406: A larger fraction of unbooked losses; if it rolls over its liabilities at increased interest rates, it squeezes its profits along with the profits of healthier competitors. The longer the silent run goes on, the more benefits are transferred from healthy banks and taxpayers to the zombie banks. The term is also used when many depositors in countries with deposit insurance draw down their balances below

468-541: A lawsuit against BEA in July 2016 in Hong Kong court over a share placement transaction. Elliott Management, which held 7% of listed shares of BEA, had included majority of the bank's directors, its CEO and chairman in the lawsuit. The transaction in question was on BEA's issuance of new shares to Japan's Sumitomo Mitsui Banking Corp (SMBC) in 2015. Elliott cited "allegations of unfairly prejudicial conduct" and "alleged serious corporate governance failings". Elliott hoped to secure

520-491: A potentially fatal run on a fictitious US bank. A run on a bank is one of the many causes of the characters' suffering in Upton Sinclair's The Jungle . In The Simpsons season 6 episode 21 The PTA Disbands has Bart Simpson starting a hush whisper campaign at the Bank of Springfield as a prank to instigate a bank run. The bank run is not shown, instead the bank manager, who bears resemblance to Jimmy Stewart, says

572-470: A professional services firm to private equity firm Permira for HKD 6.47 billion (profit of HKD 3.1 billion), and various consumer finance assets to China moneylender QL Finance for HKD 1.08 billion. On 29 June 2018, after 34 years of being a constituent of the Hang Seng Index , BEA was cut during the quarterly review of Hang Seng Index composition, effective 10 September 2018. The index said that

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624-679: A run on the banks under the rallying cry "Stop the Duke, go for gold!". Many of the recessions in the United States were caused by banking panics. The Great Depression contained several banking crises consisting of runs on multiple banks from 1929 to 1933; some of these were specific to regions of the U.S. Bank runs were most common in states whose laws allowed banks to operate only a single branch, dramatically increasing risk compared to banks with multiple branches particularly when single-branch banks were located in areas economically dependent on

676-542: A scale matching or exceeding the bank's geographical area of operation, depositors' unpredictable needs for cash are unlikely to occur at the same time; that is, by the law of large numbers , banks can expect only a small percentage of accounts withdrawn on any one day because individual expenditure needs are largely uncorrelated . A bank can make loans over a long horizon, while keeping only relatively small amounts of cash on hand to pay any depositors who may demand withdrawals. However, if many depositors withdraw all at once,

728-687: A single industry. Banking panics began in the Southern United States in November 1930, one year after the stock market crash, triggered by the collapse of a string of banks in Tennessee and Kentucky , which brought down their correspondent networks. In December, New York City experienced massive bank runs that were contained to the many branches of a single bank. Philadelphia was hit a week later by bank runs that affected several banks, but were successfully contained by quick action by

780-431: A valuable service by aggregating funds from many individual deposits, portioning them into loans for borrowers, and spreading the risks both of default and sudden demands for cash. Banks can charge much higher interest on their long-term loans than they pay out on demand deposits, allowing them to earn a profit. If only a few depositors withdraw at any given time, this arrangement works well. Barring some major emergency on

832-540: Is often delayed in the hope that insolvent banks will recover if given liquidity support and relaxation of regulations, and in the end this delay increases stress on the economy. Programs that are targeted, that specify clear quantifiable rules that limit access to preferred assistance, and that contain meaningful standards for capital regulation, appear to be more successful. According to IMF, government-owned asset management companies ( bad banks ) are largely ineffective due to political constraints. A silent run occurs when

884-582: Is one where all or almost all of the banking capital in a country is wiped out. The resulting chain of bankruptcies can cause a long economic recession as domestic businesses and consumers are starved of capital as the domestic banking system shuts down. According to former U.S. Federal Reserve chairman Ben Bernanke , the Great Depression was caused by the failure of the Federal Reserve System to prevent deflation, and much of

936-545: The 2019–20 Hong Kong protests , several BEA outlets were accidentally targeted as protestors vandalized mainland-linked business. Protestors later spray-painted "Sorry" at the vandalized branches, after they realized BEA is locally run and owned. Bank run A banking panic or bank panic is a financial crisis that occurs when many banks suffer runs at the same time, as people suddenly try to convert their threatened deposits into cash or try to get out of their domestic banking system altogether. A systemic banking crisis

988-588: The stock market crash in 1965. By order of the British Hong Kong government, the bank was aided by The Hongkong and Shanghai Banking Corporation until it was acquired by First National City Bank in 1969. In 1992, the bank was acquired by First Pacific and merged to Hong Nin Savings Bank to form First Pacific Bank . In 2000, First Pacific Bank was acquired by the Bank of East Asia . In 2002,

1040-571: The 1930s, even under conditions such as the U.S. savings and loan crisis of the 1980s and 1990s . The 2007–2008 financial crisis was centered around market-liquidity failures that were comparable to a bank run. The crisis contained a wave of bank nationalizations, including those associated with Northern Rock of the UK and IndyMac of the U.S. This crisis was caused by low real interest rates stimulating an asset price bubble fuelled by new financial products that were not stress tested and that failed in

1092-530: The 3rd and 4th generations of the Li family . It was incorporated as a publicly listed bank in Hong Kong on 14 November 1918, and officially opened for business on 4 January 1919, by a group of local Hong Kong Chinese businessmen who "not only understood modern banking, but the needs of modern Chinese business." Essentially, it aimed to serve local Hong Kong citizens and businesses who were currently underserved by

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1144-594: The Bank of East Asia did not meet the turnover and market capitalisation minimums. In late 2018, BEA began to venture into investment banking by setting up a debt capital markets team based in Hong Kong. BEA began 2019 by celebrating its centennial on 2 January 2019, with a reception at the Hong Kong Convention and Exhibition Centre attended by various business and political leaders from Hong Kong. On 1 July 2019, David Li stepped down as CEO after 38 years (but still retaining his Chairmanship), and

1196-622: The French Mississippi Company (1717–20), the post-Napoleonic depression (1815–30), and the Great Depression (1929–39). Bank runs have also been used to blackmail individuals and governments. In 1832, for example, the British government under the Duke of Wellington overturned a majority government on the orders of the king, William IV , to prevent reform (the later Reform Act 1832 ( 2 & 3 Will. 4 . c. 45)). Wellington's actions angered reformers, and they threatened

1248-668: The North American market in 1991 (though operations would later be sold to Industrial and Commercial Bank of China in January 2010), and mainland China in 1992. The late 1930s to 1940s were tough on the bank, as the Second Sino-Japanese War and later Japanese occupation of Hong Kong resulted in heavy losses, with many of BEA's assets seized. Even after the war, the Chinese Civil War and later

1300-567: The United Nations embargo on China negatively affected Hong Kong's economy, and as a result, BEA. In 1965, Hong Kong experienced a city-wide banking crisis which saw other local Hong Kong banks suffer bank runs and hostile takeovers, such as Hang Seng Bank . BEA, however, was undisturbed but became much more conservative thereafter. In 1984, after the Sino-British Joint Declaration , BEA refused to follow

1352-667: The bank in the run-up to Hong Kong's handover , the Li family 's influence in the bank continues to run deep today, with Sir David Li (3rd generation) being chairman, and his sons Adrian Li and Brian Li (4th generation) being co-CEOs. BEA expanded rapidly internationally after opening. In 1920, just one year after the bank's official opening, BEA opened its first branches outside of Hong Kong, in Shanghai and Ho Chi Minh City. In 1952, BEA opened its Singapore branch, located in Raffles Place at 60 Robinson Road. BEA would later enter

1404-420: The bank itself (as opposed to individual investors) may run short of liquidity, and depositors will rush to withdraw their money, forcing the bank to liquidate many of its assets at a loss, and eventually to fail. If such a bank were to attempt to call in its loans early, businesses might be forced to disrupt their production while individuals might need to sell their homes and/or vehicles, causing further losses to

1456-470: The bank was merged into Bank of East Asia. Bank of East Asia The Bank of East Asia Limited , often abbreviated to BEA , is a Hong Kong public banking and financial services company headquartered in Central , Hong Kong. It is currently the largest independent local Hong Kong bank, and one of two remaining family-run Hong Kong banks, with the other being Dah Sing Bank . It continues to be run by

1508-675: The benefits of collective prevention are commonly believed to outweigh the costs of excessive risk-taking. Techniques to deal with a banking panic when prevention have failed: The bank panic of 1933 is the setting of Archibald MacLeish 's 1935 play, Panic . Other fictional depictions of bank runs include those in American Madness (1932), It's a Wonderful Life (1946, set in 1932 U.S.), Silver River (1948), Mary Poppins (1964, set in 1910 London), Rollover (1981), Noble House (1988) and The Pope Must Die (1991). Arthur Hailey 's novel The Moneychangers includes

1560-598: The downturn. Under fractional-reserve banking , the type of banking currently used in most developed countries , banks retain only a fraction of their demand deposits as cash. The remainder is invested in securities and loans , whose terms are typically longer than the demand deposits, resulting in an asset–liability mismatch . No bank has enough reserves on hand to cope with all deposits being taken out at once. Diamond and Dybvig developed an influential model to explain why bank runs occur and why banks issue deposits that are more liquid than their assets. According to

1612-528: The economic damage was caused directly by bank runs. The cost of cleaning up a systemic banking crisis can be huge, with fiscal costs averaging 13% of GDP and economic output losses averaging 20% of GDP for important crises from 1970 to 2007. Several techniques have been used to try to prevent bank runs or mitigate their effects. They have included a higher reserve requirement (requiring banks to keep more of their reserves as cash), government bailouts of banks, supervision and regulation of commercial banks,

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1664-522: The fall 1930 bank runs and forced banks to liquidate loans, which directly caused a decrease in the money supply , shrinking the economy. Bank runs continued to plague the United States for the next several years. Citywide runs hit Boston (December 1931), Chicago (June 1931 and June 1932), Toledo (June 1931), and St. Louis (January 1933), among others. Institutions put into place during the Depression have prevented runs on U.S. commercial banks since

1716-547: The first four years of the crisis. Several techniques have been used to help prevent or mitigate bank runs. Some prevention techniques apply to individual banks, independently of the rest of the economy. Some prevention techniques apply across the whole economy, though they may still allow individual institutions to fail. The role of the lender of last resort, and the existence of deposit insurance, both create moral hazard , since they reduce banks' incentive to avoid making risky loans. They are nonetheless standard practice, as

1768-431: The implicit fiscal deficit from a government's unbooked loss exposure to zombie banks is large enough to deter depositors of those banks. As more depositors and investors begin to doubt whether a government can support a country's banking system, the silent run on the system can gather steam, causing the zombie banks' funding costs to increase. If a zombie bank sells some assets at market value, its remaining assets contain

1820-399: The large British banks and small, unorganized, and often unincorporated local Hong Kong moneylenders. By the 1930s, BEA was considered the most influential local Hong Kong bank in the city. BEA was co-founded in Hong Kong on 14 November 1918 and officially opened for business on 4 January 1919. The idea of a local Hong Kong bank to blend East and West, essentially by embracing the style of

1872-416: The larger economy. Even so, many, if not most, debtors would be unable to pay the bank in full on demand and would be forced to declare bankruptcy , possibly affecting other creditors in the process. A bank run can occur even when started by a false story. Even depositors who know the story is false will have an incentive to withdraw, if they suspect other depositors will believe the story. The story becomes

1924-493: The lead of many leading firms at the time to move their headquarters overseas, and instead decided to double down and reaffirm their "Hong Kong roots". Traditionally more focused on internal growth rather than external acquisitions, in 1995, BEA made its first acquisition when it acquired United Chinese Bank ( simplified Chinese : 中国联合银行 ; traditional Chinese : 中國聯合銀行 ), with the merger being completed in 2001. BEA also acquired First Pacific Bank in 2000, and that merger

1976-679: The leading city banks and the Federal Reserve Bank . Withdrawals became worse after financial conglomerates in New York and Los Angeles failed in prominently-covered scandals. Much of the US Depression's economic damage was caused directly by bank runs, though Canada had no bank runs during this same era due to different banking regulations. Milton Friedman and Anna Schwartz argued that steady withdrawals from banks by nervous depositors ("hoarding") were inspired by news of

2028-575: The lender. The same principle applies to individuals and households seeking financing to purchase large-ticket items such as housing or automobiles . The households and firms who have the money to lend to these businesses may have sudden, unpredictable needs for cash, so they are often willing to lend only on the condition of being guaranteed immediate access to their money in the form of liquid demand deposit accounts , that is, accounts with shortest possible maturity. Since borrowers need money and depositors fear to make these loans individually, banks provide

2080-408: The limit for deposit insurance. The cost of cleaning up after a crisis can be huge. In systemically important banking crises in the world from 1970 to 2007, the average net recapitalization cost to the government was 6% of GDP , fiscal costs associated with crisis management averaged 13% of GDP (16% of GDP if expense recoveries are ignored), and economic output losses averaged about 20% of GDP during

2132-427: The model, business investment requires expenditures in the present to obtain returns that take time in coming, for example, spending on machines and buildings now for production in future years. A business or entrepreneur that needs to borrow to finance investment will want to give their investments a long time to generate returns before full repayment, and will prefer long maturity loans, which offer little liquidity to

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2184-408: The model, the bank acts as an intermediary between borrowers who prefer long-maturity loans and depositors who prefer liquid accounts. The Diamond–Dybvig model provides an example of an economic game with more than one Nash equilibrium , where it is logical for individual depositors to engage in a bank run once they suspect one might start, even though that run will cause the bank to collapse. In

2236-505: The most extensive networks in mainland China for a foreign bank. BEA operates overseas in several locations serving expatriate Hong Kong residents. BEA operates overseas branches in the following countries and markets: Former overseas branches: Major shareholders in BEA as of the 2023 annual report: The position of Chief Executive Officer was known as Chief Manager prior to 1986 Hedge fund activist investor Elliott Management filed

2288-422: The organization of central banks that act as a lender of last resort , the protection of deposit insurance systems such as the U.S. Federal Deposit Insurance Corporation , and after a run has started, a temporary suspension of withdrawals. These techniques do not always work: for example, even with deposit insurance, depositors may still be motivated by beliefs they may lack immediate access to deposits during

2340-425: The stress on the economy. Some measures are more effective than others in containing economic fallout and restoring the banking system after a systemic crisis. These include establishing the scale of the problem, targeted debt relief programs to distressed borrowers, corporate restructuring programs, recognizing bank losses, and adequately capitalizing banks. Speed of intervention appears to be crucial; intervention

2392-663: The sudden withdrawal of deposits of just one bank. A banking panic or bank panic is a financial crisis that occurs when many banks suffer runs at the same time, as a cascading failure . In a systemic banking crisis , all or almost all of the banking capital in a country is wiped out; this can result when regulators ignore systemic risks and spillover effects . Systemic banking crises are associated with substantial fiscal costs and large output losses. Frequently, emergency liquidity support and blanket guarantees have been used to contain these crises, not always successfully. Although fiscal tightening may help contain market pressures if

2444-407: The years: Bank of East Asia began its mainland China business in 1992, and in 2007, was among the 4 foreign banks approved by China Banking Regulatory Commission (CBRC) to establish a locally incorporated bank, the Bank of East Asia (China) Ltd (BEA China). On 20 May 2008, BEA became a foreign bank that issued yuan-denominated debit cards in mainland China, taking advantage of the recent removal of

2496-510: Was above the industry average, at 14.6 percent. A statement by Joseph Yam , the then chief executive of the Hong Kong Monetary Authority , dismissed the rumour and strongly supported the bank, adding that funds would be made available to the bank if required but that no request had been made. Earlier in the week, the bank had been forced to restate its previous half-year's earnings downwards by nearly 12 percent after it

2548-449: Was completed in 2002. On 24 September 2008, BEA experienced a serious test in the form of the worst bank run in its history. BEA had to issue a statement to counter "malicious rumours" about its stability, as queues of customers seeking to withdraw funds formed outside some of its Hong Kong branches. It condemned the rumour mongers, declaring that it had sufficient funds to meet customers' requests, and noting that its capital adequacy ratio

2600-764: Was no disclosure of the transaction amount involved in this sales. As the banking sector and BEA continued to face challenges, BEA launched a 3-year cost-cutting plan in the beginning of 2016 to save HKD 700 million by 2018, by reducing dividend payouts, controlling costs, and trimming assets. The saving target was about 8% of its cost base in 2015. It was expected that 40% of savings coming from business alignment, 25% from restructuring middle to back offices, and remaining via branch automation and streamlining. By June 2016, BEA already slashed 180 jobs and closed down 22 securities brokerages outlets. Other key assets sold during this period of cost cutting included its holdings in Tricor,

2652-697: Was replaced by his sons Adrian and Brian Li as co-CEO's. BEA faced a difficult 2019, with loan writedowns in China and unprecedented scale of protests in Hong Kong affecting business. BEA trades through the following segments: From 1918 to 1920, the bank was headquartered in 2 Des Voeux Road Central , in Central, Hong Kong. In 1920, the bank moved its headquarters to the 29-storey Bank of East Asia Building (東亞銀行大廈) located at 10 Des Voeux Road Central , standing between New Henry House and The Landmark . The Bank of East Asia Building has had multiple rebuilds over

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2704-467: Was revealed that one of its staff had conducted unauthorised trades and then buried the losses. In October 2015, BEA entered into agreement with Sinopac Securities to sell BEA Wealth Management Services (Taiwan) Limited and Tung Shing Holdings Company Limited. BEA chairman and CEO David Li said that the disposals would allow BEA to rationalise its securities business in Greater China region. There

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