Chapter 433: The Beginning of the Hang Seng Bank Run
As 1965 began, Hong Kong's real estate market started to cool. In the fourth quarter of 1964, total transaction volumes dropped noticeably. Even though the government's auctions didn't go unsold, real estate companies were clearly losing their appetite for bidding.
On January 22, early in the morning, Yang Wendong had just arrived at the office when he saw Zheng Zhijie already waiting near the assistant's desk. As soon as he saw the boss, he stepped forward quickly and said, "Mr. Yang, something major happened in the banking sector yesterday. A check for 8 million HKD issued by Ming Tak Bank was dishonored."
"Dishonored?" Yang Wendong's expression shifted slightly. "Let's go inside. A-Ying, bring two cups of tea."
"Yes," the assistant A-Ying replied promptly.
Once inside the office, the two men sat down by the large floor-to-ceiling windows on the sofa. Yang Wendong got straight to the point. "Ming Tak Bank ran into a liquidity issue?"
In the original timeline, the 1965 banking crisis in Hong Kong was triggered by Ming Tak Bank's inability to honor its financial obligations, which set off a bank run and ultimately led to the collapse of many Chinese-funded banks in the city. The ensuing real estate crash also stemmed from this as the spark.
Perhaps this was also why Changxing Real Estate's offloading of properties last year hadn't caused too much of a stir. At most, some people became more cautious, causing the property market to cool early, but it didn't trigger a full-blown collapse—yet.
Zheng Zhijie shook his head. "We're not sure. The whole market is speculating. It's said that one of the real estate companies Ming Tak Bank partnered with ran into trouble, and that they couldn't recover the loans. But the news about the dishonored check has already spread throughout Hong Kong. I expect a run on the bank, similar to what happened back in 1961."
"Let's wait and see." Yang Wendong nodded. "I've heard that with the property market booming these past couple of years, many banks have been making risky, even illegal profits. Something like this was bound to happen eventually."
Banks may have risk control mechanisms, but local "silver houses" (private banks or trust companies) were a different story. In essence, they were just glorified lending institutions, much like the P2P lenders of the future. And with Hong Kong's laissez-faire "free market" policy, the government barely regulated them at all.
Back in 1961, when Liu Chong Hing Bank suffered a bank run, the Hong Kong government slightly tightened restrictions on financial institutions. But after a year or two, it eased off again.
With the property market in full swing, banks rushed in to grab a share of the pie. Lending became rampant, with many real estate companies using extreme leverage—offering even higher interest rates to attract capital. This tempted even traditionally conservative banks and silver houses to take excessive risks just to make quick money.
Unregulated capital is often hard to comprehend. These institutions, just like the developers they financed, were all highly confident in Hong Kong's booming property market. That kind of blind optimism bred recklessness.
Zheng Zhijie nodded. "Yes. Just last year, several banks approached us with incredibly tempting terms. If you hadn't ordered us to scale back, Mr. Yang, I might've gone ahead and partnered with them."
"The final frenzy always looks like an opportunity," Yang Wendong replied calmly.
Zheng continued, "Also, the Hong Kong government issued new banking regulations at the end of last year, putting more constraints on banks."
"That's only natural. Gradually tightening financial oversight is necessary." Yang Wendong paused, then added, "Here's what you'll do—keep an eye on Ming Tak Bank over the next few days, but don't interfere. Just observe how this plays out."
In truth, 8 million HKD was an amount Yang Wendong could easily cover if he chose to. If he stepped in now, he could probably save Ming Tak Bank.
But that wouldn't change history.
Ming Tak's collapse was only the spark. The root of the problem lay in systemic risk throughout the banking sector. Real estate prices were falling, and countless banks and silver houses were going to face liquidity issues. Even if he saved Ming Tak today, another one would go under tomorrow. He had neither the obligation nor the desire to save everyone.
In fact, Yang Wendong suspected there were powerful players behind this "crisis." It didn't benefit him to get involved—better to sit back and watch for now.
Zheng Zhijie nodded. "Understood."
Yang Wendong asked, "How much do we still have deposited in Chinese-funded banks in Hong Kong?"
"Following your orders, most of the funds were already transferred out," Zheng Yuhua replied. "But we didn't move everything. There's still over 10 million HKD in Bank of East Asia and Hang Seng Bank—both banks you approved."
"Alright. That's fine," Yang Wendong said. "We can't afford to withdraw all of our funds, anyway."
Both Bank of East Asia and Hang Seng were reputable institutions. They had solid foundations and weren't involved in excessive speculation. Even if a crisis hit, they were likely to be rescued.
In fact, when HSBC later acquired Hang Seng Bank in the original timeline, it wasn't about rescuing the bank—it was because Hang Seng was a juicy target. Bank of East Asia was in a similar position.
So having some deposits with them was still acceptable. Even if history stayed the same, HSBC's takeover would still honor all liabilities.
Over the following days, Yang Wendong kept a close eye on developments in the banking sector.
The reason behind Ming Tak's dishonored check was quickly leaked by insiders: they simply had no money left.
Ming Tak was a relatively small institution, with most of its capital already loaned out. Who could've anticipated someone demanding an 8-million-dollar withdrawal in one go?
To put it into perspective, even a business manager at HSBC would treat a client with that much in cash like royalty. In 1960s Hong Kong, 8 million in liquid cash was a fortune—enough to leverage tens of millions through financing. Many listed companies didn't even have that much cash on hand.
What was even stranger was that someone had actually trusted Ming Tak Bank enough to deposit 8 million with them.
Before long, massive queues formed outside Ming Tak's branches. The events of 1961 were still fresh in the minds of many depositors. Soon after, more large clients began withdrawing funds. These were people with deposit certificates ranging from hundreds of thousands to even 500,000 HKD or more.
Back in the day, Ming Tak had lured in these deposits with high interest rates. But once the money was in, it had to be lent out—otherwise, how could they pay those interest rates?
Now, with a tidal wave of withdrawals and no reserves, the bank was doomed. By January 24, their books were completely empty.
As the news spread, even more depositors rushed to withdraw, paralyzing traffic outside the bank's headquarters.
The Hong Kong government quickly stepped in, took control of the bank, and issued a public guarantee that all deposits would be honored.
The immediate crisis at Ming Tak Bank was thus resolved. Most people trusted the government's word. The panic subsided.
But the seed of doubt had been planted. And there would be no uprooting it now.
Then came the Chinese New Year of 1965.
At the Yang family residence, the holiday was celebrated in the same peaceful manner as every year. But this year, there was an added cause for celebration—the East River Water Supply Project from the mainland had finally been completed.
Massive volumes of water from the Dongjiang River had now been connected to Hong Kong's municipal water supply. Almost immediately, water pressure improved across the city. Fountains in parks and central districts sprang back to life.
This was a tremendous morale boost for Hong Kong's economy. The previous water shortages had affected every industry—real estate needed water, factories needed water, even power plants relied on water. Now, this long-standing issue had finally been resolved.
After the New Year, people returned to work—and so did the banks.
Guangdong Trust and Development Bank was next in line for a bank run. Over the holiday period, newspapers had been filled with speculation about various banks' debt exposure and liquidity issues. Even street vendors were gossiping about which institutions were next to fall.
So, on the first working day after the holidays, the public targeted Guangdong Trust.
And regardless of whether a bank was healthy or not, there wasn't a single institution in the world
Within just a few days, Guangdong Trust and Development Bank's accounts were drained of funds. Its owner immediately reached out to other banks for emergency support, but those institutions, afraid the same thing might happen to them, refused to step in. In the end, Guangdong Trust was forced to declare bankruptcy.
The moment the news broke, a wave of panic rippled through Hong Kong's entire Chinese banking sector. Major Chinese banks—Hang Seng Bank, Bank of East Asia, Far East Bank, Dao Heng Bank, Wing Lung Bank, and more—were all affected to varying degrees.
British banks, however, remained calm. Neither HSBC nor Standard Chartered saw any bank runs. In fact, many depositors who withdrew money from Chinese banks went straight to the British ones to deposit their cash. The British were standing on the shore, watching the fire spread across the river.
Inside Hang Seng Bank's headquarters, He Shanheng's face was grim. More than a dozen senior executives sat quietly, their expressions solemn. The entire room was tense—even the sound of breathing seemed deliberately muted.
"How much money do we have left in our accounts?" He Shanheng asked, looking at a middle-aged woman.
She replied, "Mr. He, we still have 45 million HKD in the accounts. Of that, 26 million was set aside for loans that haven't yet completed final processing."
"I suggest we stop all loans that haven't been disbursed yet," a senior executive quickly interjected. "Ming Tak Bank and Guangdong Trust have already gone bankrupt. We need to hold on to our capital to prepare for any possible emergencies."
Another executive objected. "Mr. Qin, those banks had fundamental problems. Their risk controls were poor when it came to lending. Hang Seng, on the other hand, has always operated by international banking standards. We've had strong risk management and a much larger scale. Are we really going to overreact?
Most of these loans already have signed contracts. If we fail to deliver, we'll have to pay penalties. More importantly, it will severely damage our commercial reputation."
Everyone turned to look at the man who had spoken. He was in charge of the bank's credit department. Halting all loans would devastate his business performance, income, and client relationships.
Still, even ignoring his personal stakes, what he said was true. A bank-wide loan freeze would have serious consequences. After all, only two small banks had failed so far. Was it really necessary to go to such extremes?
The previous executive countered, "What if we don't have enough liquidity and a run begins at our bank? Depositors won't care how well we're managed—they'll just want their money. If we can't give it to them, even the gods couldn't stop the panic."
"I disagree," someone else said. "If we default on this many loans, we won't just lose clients and credibility. At this sensitive moment, if one of those clients sues us, it could trigger the very run we're trying to avoid."
"That's different. At worst, we compensate them. We can reason with a few business owners. But with tens of thousands of depositors? The more you try to explain, the less they'll believe you."
The boardroom was divided. Hang Seng Bank's executives argued back and forth, each clinging to their perspective.
At the head of the table, He Shanheng frowned deeply. This was truly a dilemma. Holding onto capital would hurt the bank's reputation and long-term relationships, maybe even future business. But if they didn't prepare and ended up facing a run, would they survive?
"Did Yang Wendong tell me to hold more cash because he foresaw this?" the thought suddenly struck him.
He recalled what Yang Wendong had said casually some time ago. At the time, he hadn't paid much attention, but now it seemed like a warning in hindsight. But how had Yang Wendong known?
"Did he predict this based on the real estate market and overall banking debt ratios?"
That was a likely explanation. Everyone in Hong Kong respected Yang Wendong's judgment. With his foresight, predicting a systemic risk in the banking sector wouldn't have been too difficult—especially if he was certain that a real estate downturn was coming. Once property prices stopped rising or even began to fall, bad debts would naturally surface in the banks.
Unfortunately, although Hang Seng had low-risk operations, he hadn't kept extra cash on hand. Most of their liquidity had already been lent out, following standard business practices.
"Mr. He?" his assistant gently reminded him.
He Shanheng snapped out of his thoughts. "Here's what we'll do: contact our loan clients and see who's willing to delay disbursement. We'll offer some compensation, or we can issue written guarantees that we'll provide a better loan with lower interest in six months.
If anyone refuses, we can try to transfer their loan to another bank. If that doesn't work, we'll have no choice but to issue the loan ourselves. But I expect that with this approach, the total amount we'll actually need to lend will be much smaller.
I know most of these clients—they're long-time partners. We've helped each other before. I don't expect too much trouble."
"Understood, Mr. He," several executives nodded in agreement.
It was indeed the most sensible compromise.
He Shanheng continued, "Also, to reduce exposure, contact some of our close partners and ask if they can repay their loans early. We'll offer a small bonus in return."
Everyone nodded. A little short-term loss in profit was worth the added liquidity—and maintaining good relations during a crisis could prevent much bigger problems later.
It was a smart move.
Another week flew by in the blink of an eye.
Hong Kong's banks were in chaos. The bank runs were spiraling out of control. In 1961, only Liu Chong Hing Bank had been affected. Everyone else had watched from the sidelines—and even laughed when Liu Bao Shan asked for help.
But now, they were experiencing the same desperation Liu had felt. Every single branch was flooded with people demanding their money. Most weren't withdrawing huge sums individually—but collectively, each branch lost millions of dollars a day.
By mid-February, several smaller banks couldn't hold out any longer. They folded and declared: "No money left."
They had no way of standing up again. As a result, ordinary Hongkongers panicked. People took leave from work just to queue up and withdraw their savings.
At Changxing Tower, Yang Wendong was receiving a flood of leave requests from his employees. Left with no choice, he said, "Let them go. There's no stopping people in a panic. We'll let them make up the time later."
Wei Zetao said, "We can do that—but such a chaotic, large-scale leave schedule is going to affect our production."
"There's no helping it," Yang Wendong replied. "A few days' pay can't compare to someone's lifetime savings. We're in Hong Kong—when something big happens here, we're affected too. Remember the water crisis a few years ago?"
And this was just a minor disruption. Things would get worse in two years. That's why Yang Wendong had begun shifting production capacity overseas as early as 1963. Not because he could predict exact losses, but because having overseas bases would always help.
"We'll do what we can," Wei Zetao said.
Then Yang Wendong turned to Zheng Zhijie. "Hang Seng's facing runs too now, right? What's the situation?"
Whether or not Yang Wendong existed, the banking crisis was inevitable. The root cause lay in the government's failure to regulate the financial system. During the property boom, banks got greedy and ignored the risks. Now, with the market turning, the time bomb was going off.
And more than that—Yang Wendong had a sense that someone was fanning the flames behind the scenes. He had no proof, but something didn't sit right.
"Yes, all Hang Seng branches are experiencing runs," Zheng Zhijie reported. "The lines are huge. He Shanheng is already scrambling to raise funds."
Thank you for the support, friends. If you want to read more chapters in advance, go to my Patreon.
Read 40 Chapters In Advance: patreon.com/johanssen10