Hong Kong banks under scrunity over liquidity
Lenders in the city are requested to carry out frequent stress tests to make sure they can cope in the event of a massive outflow of hot money
The Hong Kong Monetary Authority is closely monitoring bank liquidity to prepare for a potential massive outflow of hot money, according to deputy chief executive Arthur Yuen Kwok-hang.
Yuen said the authority had requested local lenders carry out frequent stress tests to check they could cope with the situation, assuming half of the US$100 billion of hot money in the city flowed out of the banking system.
Banks should have sufficient high-quality debt on hand that could be sold for cash any time, or they must have lending facilities with their parent banks to ensure they have funding supplies in case the market dries up due to the outflow
"Banks should have sufficient high-quality debt on hand that could be sold for cash any time, or they must have lending facilities with their parent banks to ensure they have funding supplies in case the market dries up due to the outflow," he said yesterday.
"Overall, the latest tests showed all banks in Hong Kong can maintain their liquidity position even if half the hot money leaves the city."
The US$100 billion of hot money inflow to Hong Kong has been the result of three rounds of quantitative easing in the United States since the financial crisis of 2008. Under the easing, the US has aggressively pumped cash into the economy to boost investment and spending, but some excess funds came to Hong Kong to speculate in the stock and property markets.
US Federal Reserve chairman Ben Bernanke hinted in June at tapering off this monetary stimulus. Yuen said local lenders had to prepare for the outflow as the end of quantitative easing would result in the hot money returning to the US.