Did the Bankruptcy of Hu Kwang-Yung and the Shanghai Crisis of 1883 Cause the 1884 Failure of the Oriental Bank?

Abstract

The 1884 failure of the Oriental Bank has been subject to various competing interpretations and theories. Frank H. H. King’s history of HSBC juxtaposes that bank’s strong management, fortuitous capital-raising, and less bullish position heading into the 1883 Shanghai crisis—caused by the failure of the merchant, banker, and official Hu Kwang-yung—with the contrasting behavior of the Oriental, implying that the crisis was the final blow to the bank. The results of a longitudinal analysis of the Oriental Bank’s financial statements and the records of its liquidation show not only that the Shanghai branch was probably not large enough to have had a substantial impact on the bank’s failure, and that Hu Kwang-yung and his local banks were not known to have had any outstanding loans from the bank, but also that losses on loans to coffee plantations in Ceylon and sugar plantations in Mauritius exceeded the institution’s entire capital and reserves. As these exposures were mainly dated prior to 1879, it is likely that the Oriental was insolvent by this date, and hence that these exposures, and not the Shanghai crisis, were the cause of its failure.