As the United States government is trying to put the country's financial house in order, there has been a rising call for the downsizing of banks.

The common notion that some banks are simply "too big to fail" has brought to the forefront the issue of moral hazard. Critics note that the failure of the proposed government reform plan to address the bank size issue could negate its entire effort to prevent a repeat of the 2008 credit crisis from happening again in future.

In an article published in the South China Morning Post, Kevin Rafferty, former managing editor at the World Bank, warned that the US financial system is still at the risk of meltdown.

He wrote: "The crisis actually increased the financial concentration in the US. The financial gamblers are still playing, and the risks have increased, not diminished."

This argument is in line with what Andrew Haldane, executive director of the Bank of England, has said. Haldane has pointed out that without radical reform, banks will trap governments in a "doom loop," requiring larger bailouts in future crises.

Although such warnings don't necessarily apply to other economies, they are of particular interest to Hong Kong, whose financial market has been dominated by a number of large banks for as long as anyone can remember. At one time, the various units of HSBC Holdings, or Huifeng to most Hong Kong people, together controlled more than 50 percent of the city's total deposits. HSBC's flagship bank was the banker to the government and a major note-issuing bank.

Before the establishment of the Hong Kong Monetary Authority to manage the exchange rate peg in the 1980s, much of the central bank function was relegated to Huifeng, which, as the big brother in the banking cartel in those days, set the interest rates and controlled the supply of credit through the inter-bank market.

Representatives of the bank sat on the Executive Council, the highest policy making agency, as well as the legislature.

Other than the occasional complaints by a few foreign banks for being locked out of the market, the close collaboration between the government and the big banks was widely seen to have proven its worth in the rapid development of Hong Kong as a regional financial center in the 70s and 80s. The prosperity brought by the expanding volume of cross-border financial transactions had bred the common notion that what's good for Hong Kong was good for the bank and vice versa.

In the past several decades, the big banks had played a pivotal role in weathering numerous financial storms arising from the runs on one or more smaller banks. On most occasions, all that was needed to pacify jittery depositors was for the big banks to pledge their support behind the affected banks. Such successes were a reflection of Hong Kong people's confidence in their big banks.

Of course, the financial markets have become vastly more complex now than they were in the 80s when loan syndications accounted for the bulk of regional transactions, and currency swaps were among the most complicated financial derivatives traded. However, the integrity of the big banks, in the eyes of many Hong Kong people, have remained intact under the stress of the Asian financial crisis in 1997, and the global credit crunch in 2008.

The banking market in Hong Kong has become much more competitive since the break up of the cartel, and the cost of money is largely determined now by the working of the peg exchange rate mechanism. Many smaller banks in Hong Kong are well entrenched in their niche markets and the influx of foreign banks has greatly widened our investment horizon.

But most Hong Kong people still believe that big is beautiful in banking. We still park at least a chunk of our money in the few biggest banks.

E-mail: jamesleung@chinadaily.com.cn