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Hong Kong Monetary Authority

HKMA rescue facility capped at $10b for qualifying banks only

PUBLISHED : Saturday, 03 July, 1999, 12:00am
UPDATED : Saturday, 03 July, 1999, 12:00am

The Hong Kong Monetary Authority's lender of last resort facility is being capped at $10 billion and made available only to troubled banks with a capital-adequacy ratio of more than 6 per cent.

In a policy statement issued yesterday to reaffirm its role as the SAR's official lender of last resort, the authority said the facility would provide breathing space to banks facing short-term funding problems.

It said the facility would minimise bank insolvencies and bank runs resulting from short-term liquidity shortages.

Financially troubled banks could obtain liquidity support up to a level equal to 100 per cent of their capital bases if they met the minimum capital adequacy-ratio requirement of 6 per cent.

Banks with capital-adequacy ratios above the minimum, would be able to obtain support up to 200 per cent of their capital bases.

In both cases, the maximum amount that could be drawn from the facility is $10 billion - and for a period of no longer than 30 days.

The facility is only available to banks incorporated in Hong Kong.

The authority said it recognised the liquidity of branches could not be divorced from the whole of foreign banks.

'It follows, therefore, that the head office of the branch - supported if necessary by the lender of last resort of its home country - would be expected to provide enough funding to enable its branch in Hong Kong to meet its obligations,' the authority said.

'If it were unable to do so, there would be no alternative but for the branch to close its operation in Hong Kong.' The authority is one of the few central banks that accepts residential-mortgage assets as collateral for lender of last resort borrowings in addition to the usual Government papers.

It prefers to accept certain mortgage assets as collateral, such as those in the Home Ownership Scheme, which are 100 per cent-guaranteed by the Government.

Also acceptable are assets that conform with the purchasing criteria at the Hong Kong Mortgage Corp.