Hong Kong will seek support from other Asian central banks to press for changes to risk weightings used by the Bank for International Settlements (BIS).
The intention was to enhance the competitiveness of Hong Kong banks, according to Hong Kong Monetary Authority deputy chief executive David Carse, who said the problem dated back to the Capital Accord agreed to by the BIS in 1989.
To distinguish the risk incurred in the long-term claims of banks, the Basle Committee for international banking supervision, under the BIS, adopted membership of the Organisation for Economic Co-operation and Development (OECD) as criterion.
Long-term claims on OECD banks are only 20 per cent risk-weighted, while non-OECD banks are 100 per cent risk-weighted.
Translated into actual terms, any bank that lends to an OECD bank would only put up a fifth of the capital normally required from an non-OECD bank.
For capital adequacy reasons, banks have to put up $8 capital for every $100 in loans they make.
If the loan is made to an OECD country bank, the capital charge would only be $1.60 because of the 20 per cent concession.
