HKMA revised the Supervisory Policy Manual (SPM) module CA-B-2 on systemically important banks. HKMA published the revised module CA-B-2 as a statutory guidance, by notice in the Gazette, under section 7(3) of the Banking Ordinance. The revisions aim to improve the assessment of the complexity of authorized institutions in the domestic systemically important bank (D-SIB) identification process as well as to update various sections of the policy module to reflect recent developments. The completion instructions for the Return of Information for Assessment of Systemically Important Authorized Institutions (MA(BS)24) have also been updated. However, no resulting impact is expected on the regulatory reporting of authorized institutions.
The SPM module CA-B-2 sets out the assessment methodology of HKMA for identifying systemically important authorized institutions in Hong Kong and for calibrating the level of any higher loss-absorbency capital requirements. The module also sets out other policy and supervisory measures to be applied to authorized institutions that are identified as being systemically important to address the risks they pose. According to the BCBS D-SIB framework, D-SIBs should be assessed in terms of the potential impact of their failure on the reference system. This can be interpreted as a “loss given default” concept rather than a “probability of default” concept. The D-SIB framework in Hong Kong aims to assess the degree to which authorized institutions are systemically important in a domestic context by reference to the financial system and domestic economy in Hong Kong. This means that the assessment focuses on addressing the externalities that the distress or failure of an authorized institution could generate at a local level. The D-SIB assessment is based on the four factors drawn from the BCBS D-SIB framework—size, interconnectedness, substitutability, and complexity. D-SIBs are identified using a two-step approach. The first step is to draw up a preliminary indicative list of D-SIBs based on the quantitative scores calculated using a set of factors or indicators. The second step involves the exercise of supervisory judgment that may serve as a complement to the quantitative assessment process—that is, to refine the preliminary indicative list by either removing or adding authorized institutions to the list.
Keywords: Asia Pacific, Hong Kong, Banking, Regulatory Capital, D-SIB, G-SIB, Supervisory Policy Manual, Banking Ordinance, Systemic Risk, Basel, BCBS, HKMA
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
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