HK law would allow bail-outs to prevent systemic financial failures
Proposed law giving city regulators power to prevent potentially systemic financial failures is complicated by fact that most firms are based overseas
Heated debate is expected to erupt over a proposed new Hong Kong law aimed at rescuing large companies that are considered "too big to fail".
The government will submit to the Legislative Council by the end of this year legislation that will give regulators the power to take control of financial giants, and even the stock exchange, if they get into trouble. Consultations will last until April.
"Under current laws, there is a higher risk that Hong Kong's government would be forced into government funded bail-outs of failing financial institutions. These proposals set out to give the government a wider range of options if a financial institution starts to fail," said Royce Miller, partner of Freshfields Bruckhaus Deringer Hong Kong.
The reform is part of the new international financial regime proposed by the Financial Stability Board, of which Hong Kong is a member.
The proposed new law would empower the Hong Kong Monetary Authority, the Securities and Futures Commission and the Office of the Commissioner of Insurance to take control of the firms within their ambit - banks, brokerages and insurers - when they are in trouble and if their failure will lead to a knock-on effect in the markets.
During the 2008 financial crisis, US taxpayers spent US$85 billion to bail out the giant AIG insurance conglomerate, while Britain spent £130 billion (HK$1.5 trillion) on bail-outs of RBS and other banks.