The Hong Kong Monetary Authority (HKMA) announced on 16 March 2015 that five Hong Kong Authorized Institutions (AIs) have been designated as domestic systemically important banks (D-SIBs) (please see our previous blog post).

The five D-SIBs as at 16 March 2015 and the corresponding HLA buckets are available here.

The HKMA is given power pursuant to the Banking Ordinance to assess and designate AIs as D-SIBs, depending on each AI’s systemic importance. An AI designated as D-SIB will now be subject to a Higher Loss Absorbency (HLA) requirement, which it must apply to the calculation of its regulatory capital buffers by 16 March 2016. The purpose of imposing an HLA requirement is to reduce the chance of the D-SIBs becoming non-viable with consequent adverse impact on the economy.

There are a total of five HLA levels (“buckets”) ranging from 1% to 3.5%. The HLA capital requirement will be gradually phased-in from January 2016 to reach the maximum bucket percentage by January 2019.

The HKMA will conduct a review of the list of D-SIBs and their applicable HLA requirements annually.

For further information on D-SIBs, the HKMA’s press release is available here.