HKMA Updates Liquidity Facilities Framework for Banks
HKMA updated the framework for provision of HKD liquidity to authorized institutions, with immediate effect. Post completion of a review of the framework, HKMA has introduced a new Resolution Facility to provide for the scenario in which HKMA exercises resolution powers under the Financial Institutions (Resolution) Ordinance (FIRO), as the designated resolution authority. HKMA also made a number of refinements to various established arrangements within the updated framework. In this framework, “banks” refers to licensed banks, restricted license banks, and deposit-taking companies.
Through the different liquidity facilities, HKMA makes temporary HKD liquidity (that is, not in the nature of capital support) available to authorized institutions to maintain integrity and stability of the monetary and financial systems in Hong Kong. The updated liquidity facilities framework makes operational an important part of the resolution regime in Hong Kong and takes forward a key recommendation of the 2018 Peer Review of Hong Kong by FSB. The updated liquidity facilities framework comprises the following:
- Settlement Facilities (Intraday repo and discount window), the objective of which is to facilitate smooth operation of the interbank payment system and thus preserve systemic stability.
- Standby Liquidity Facilities (including term repos and foreign exchange swaps), the objective of which is to make term liquidity available to authorized institutions to enable them to manage any unexpected liquidity tightness which they may encounter.
- Contingent Term Facility, which makes reference to the guiding principles of the previous Lender of Last Resort arrangements. It may be made available, at the discretion of HKMA, to an authorized institution facing extraordinary liquidity stress that cannot be overcome through other means.
- Resolution Facility, which is designed to provide for the scenario in which resolution powers under the FIRO are exercised by HKMA as the resolution authority.
The newly introduced Resolution Facility may be made available, at the discretion of HKMA, having regard to systemic stability, for ensuring that an authorized institution that has (or whose holding company has) gone into resolution in Hong Kong has sufficient liquidity to meet its obligations, until such time as the authorized institution is able to transition back to market-based funding. The terms on which liquidity is provided under the Resolution Facility will be set by the HKMA on a case-by-case basis. The Resolution Facility will be available only where resolution has been initiated under the FIRO. Additionally, any losses arising from assistance provided under the Resolution Facility may ultimately be recovered pursuant to the levy arrangements that may be imposed under the FIRO. This updated framework supersedes the “Policy Statement on the Role of the Hong Kong Monetary Authority as Lender of Last Resort,” which was issued in March 2009.
Keywords: Asia Pacific, Hong Kong, Banking, Systemic Risk, Liquidity Facility, Lender of Last Resort, Resolution Ordinance, HKMA
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