The Monetary Authority (MA) of Hong Kong moved to stabilize the local financial market on Tuesday amid global financial tsunami by implementing five temporary measures to provide liquidity assistance to licensed banks in Hong Kong from Oct. 2 to the end of March.
Joseph Yam, Chief Executive of the Monetary Authority, the city 's de facto central bank, added the existing framework for maintaining banking stability, including the prudential supervision of banks and the arrangements for providing liquidity both at the systemic and institutional levels, have ensured Hong Kong's banking system is well prepared for turbulent conditions.
He said people should exercise caution as markets are likely to be volatile due to the U.S. situation and its impact around the world.
According to the plan, the Monetary Authority will provide liquidity assistance upon request from licensed banks by expanding eligible securities to include U.S. dollar assets of credit quality acceptable to the authority for access by individual licensed banks to liquidity assistance through the discount window.
The authority will also extend the duration of liquidity assistance provided to individual licensed banks through the discount window from overnight money only to maturities of up to three months at the request of these banks and on a case-by-case basis.
According to the plan, the authority will raise the 50 percent threshold for the use of Exchange Fund paper as collateral for borrowing through the discount window at the authority base rate to 100 percent, which means the 5 percent premium, or penalty, over the base rate for the use of Exchange Fund paper beyond the 50 percent threshold, as collateral for borrowing through the discount window, will be waived;
The authority will conduct foreign exchange swaps between the U. S. and the Hong Kong dollar of various durations with licensed banks in response to requests from banks and when the authority considers necessary.
The authority also agreed to lend term money of up to one month to individual licensed banks against collateral of credit quality acceptable to the authority in response to requests from individual licensed banks and when it considers necessary.
Financial Secretary of Hong Kong Special Administrative Region (HKSAR) government John Tsang backed the Monetary Authority's move, saying the measures will reinforce the local banking framework at a time of instability and stress in the world financial system. The measures will help ensure it continues to function effectively.
Tsang said they are designed to expand the scope for providing liquidity assistance to licensed banks should they require it, noting continuing stress in the financial systems of developed markets has caused some concern among licensed banks in Hong Kong over the credit worthiness of each other.
"This concern, together with a wish to preserve liquidity to meet their own contingent needs, has led to a general shortage of interbank liquidity and difficulties on the part of individual licensed banks in obtaining funding in the interbank market," he said.
(Xinhua News Agency October 1, 2008)
