Hong Kong Monetary Authority moves to steady ship amid protests, US-China trade war, introduces new funding facility for city’s banks
- New resolution facility to help banks in difficulty taken over by HKMA
- Updated framework will help Hong Kong fulfil a FSB requirement
Hong Kong Monetary Authority, the city’s de facto central bank, has introduced new ways in which the city’s lenders can borrow from it, a move aimed at strengthening the banking system at a time of unprecedented social unrest.
The new measures also enhance the current system banks can use to borrow from the monetary authority should they face an unexpected liquidity crunch, it said in a circular to all banks on Monday.
“This is part of our ongoing work to maintain the integrity and stability of the monetary and financial systems of Hong Kong,” Norman Chan, the HKMA’s chief executive, said in a statement.
“The [updated Liquidity Facilities Framework] outlines the facilities that are already in place, as well as the newly introduced resolution facility, in a systematic way so as to foster a better understanding of the different ways that liquidity may be made available to banks by the HKMA,” he said.
The new resolution facility can be used when the monetary authority takes control of a bank in difficulty. Under this facility, the HKMA will use several channels to inject liquidity into a bank and ensure it has money to settle its dealings with other parties. The facility can last until operations at the bank return to normal.
There are three other ways through which banks can get funds from the HKMA, which have been enhanced by the new measures. In the first two facilities – the settlement facility and standby liquidity facility – banks can access overnight funds, or for up to a month, for settlement purposes.
The third one, contingent term facility, will be accessed according to lender-of-last-resort arrangements, which will only be used when a bank is facing extraordinary liquidity stress and cannot get funding in the market. A bank that needs to use this facility must have adequate collateral, such as Exchange Fund bills and other high-quality bonds, to get funding from the HKMA. The facility can be used to prevent a situation that may undermine public confidence, or damage systemic stability in Hong Kong, the circular said.
The updated framework, Chan said, will help Hong Kong fulfil an international requirement recommended by the Financial Stability Board (FSB) in 2018. The FSB, set up after the global financial crisis of 2009, gives suggestions on enhancing the stability of the international financial system.
“The updated Liquidity Facilities Framework allows for a better understanding by the market and the industry of the different facilities through which the HKMA makes Hong Kong dollar liquidity available to banks,” said a spokesman of industry body Hong Kong Association of Banks.
“The updated framework will help promote the smooth operation of the interbank market, further enhance confidence in the Hong Kong banking system and maintain the integrity and stability of the monetary and financial systems of Hong Kong,” he said.
The measures come as the city faces unprecedented social unrest. The anti-extradition bill protests have lasted for 79 days as of Monday.
Seven of Hong Kong’s largest banks, including two of its three currency issuing lenders, closed early 230 branches between them on Monday, August 5, after the protesters called a citywide strike.
The banks were also targeted by a failed attempt to empty their automated teller machines (ATMs) in a city where 160 licensed banks serve 7.4 million residents. Hong Kong had 50.09 ATMs and 21.43 branches for every 100,000 residents in 2016, according to the World Bank. This is higher than the global average of 47.55 and 12.6, respectively, in urban centres.