HKMA issued a consultation on Supervisory Policy Manual module LM-1 on the regulatory framework for supervision of liquidity risk. This module provides guidance to authorized institutions on the application of the Banking (Liquidity) Rules, or BLR, and sets out the approach HKMA will take in assessing the compliance of authorized institutions with the statutory liquidity requirements.
HKMA requires each institution to maintain adequate liquidity in compliance with the minimum requirements on the statutory liquidity ratios (whichever is applicable) and to put in place sound systems and controls for the management of liquidity risk. The Banking (Liquidity) Rules under §97H(1) prescribe the requirements in respect of:
- Liquidity Coverage Ratio (LCR), which is applied to authorized institutions designated by HKMA as “category 1 institutions”
- Liquidity Maintenance Ratio (LMR), a local liquidity standard developed by HKMA for application to all other authorized institutions that are not designated as category 1 institutions and which are referred to as “category 2 institutions”
- Net Stable Funding Ratio (NSFR), which has the same scope of application as the LCR (that is, category 1 institutions)
- Core Funding Ratio (CFR), a modified version of the NSFR developed by HKMA for application to certain category 2 institutions that are designated as “category 2A institutions”
Authorized institutions are also expected to observe any other supervisory requirements specified by HKMA from time to time to enhance liquidity risk management. HKMA adopts a risk-based supervisory approach to monitor liquidity positions of authorized institutions and assess the soundness of their liquidity risk management systems and controls through a combination of supervisory actions, including (but not limited to) risk-focused off-site reviews, on-site examinations, and prudential meetings.
Keywords: Asia Pacific, Hong Kong, Banking Liquidity Risk, LCR, NSFR, Supervisory Policy Manual, Banking Liquidity Rules, HKMA
Previous ArticleFSC Publishes an Update on Regulatory Sandbox Initiative
HKMA announced the publication of a report on fintech adoption and innovation in the banking industry in Hong Kong.
BIS published a working paper that examines the drivers of cyber risk, especially in context of the cloud services.
ECB launched consultation on a guide specifying how the Banking Supervision expects banks to consider climate-related and environmental risks in their governance and risk management frameworks and when formulating and implementing their business strategy.
ECB published an opinion (CON/2020/16) on amendments to the prudential framework in EU in response to the COVID-19 pandemic.
EBA published a report that examines the interlinkages between recovery and resolution planning under the Bank Recovery and Resolution Directive (BRRD).
SRB published the final Minimum Requirements for Own Funds and Eligible Liabilities (MREL) policy under the Banking Package.
EIOPA published its risk dashboard based on Solvency II data from the fourth quarter of 2019.
MNB published a statement on loan payments post the announced moratorium, in addition to a set of new questions and answers (Q&A) on supervisory measures and requirements announced amid COVID-19 pandemic.
EBA updated the Single Rulebook question and answer (Q&A) tool for banks.
US Agencies (FDIC, FED, and OCC) published an interim final rule that temporarily revises the supplementary leverage ratio calculation for depository institutions.