In the midst of ongoing protests and the U.S.-China trade war, the Hong Kong Monetary Authority has updated its emergency funding framework and introduced a new facility to support banks in the case of an unexpected liquidity crunch.
The HKMA’s updated liquidity framework includes the introduction of four new ways banks can borrow from the central bank in the case of any liquidity crisis and to fulfill requirements recommended by the Financial Stability Board (FSB) in 2018.
«This is part of our ongoing work to maintain the integrity and stability of the monetary and financial systems of Hong Kong,» said HKMA chief executive Norman Chan in a statement.
«The [updated] 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.»
Four Facilities
The updated liquidity framework includes four channels for funding: a settlement, standby liquidity, contingent term and resolution facility.
Banks seeking access to overnight funds for up to a month for settlement purposes can seek funding through the settlement and standby liquidity facility. Banks facing extreme liquidity stress and lack access to market funding can use the contingent term facility as a lender of last resort but must have adequate collateral though high quality bonds.
Failing banks that have gone into resolution can use the resolution facility – a newly introduced channel – until it is able to transition back to market-based funding.
