On 26 August 2019, the Hong Kong Monetary Authority (HKMA) announced that it has completed a review of its framework for the provision of Hong Kong dollar liquidity (the Liquidity Facilities Framework) to authorized institutions (AIs) in light of its ongoing work on Hong Kong’s resolution regime. As part of this, the HKMA has introduced a new resolution facility and incorporated various refinements to its existing Liquidity Facilities Framework. The updated Liquidity Facilities Framework takes immediate effect and supersedes the “Policy Statement on the Role of the Hong Kong Monetary Authority as Lender of Last Resort” issued in March 2009.
In summary, the updated Liquidity Facilities Framework comprises of:
- Settlement Facilities: the objective of the two settlement facilities (intraday repo and discount window) is to facilitate smooth operation of the interbank payment system and preserve systemic stability;
- Standby Liquidity Facilities (including term repos and FX swaps): this provides term liquidity to AIs, to enable them to manage any unexpected liquidity tightness. Liquidity is normally available at a term of up to one month and may be rolled over, subject to re-pricing at maturity. The HKMA will determine pricing by reference to market rates;
- Contingent Term Facility: this may be made available, at the discretion of the HKMA, to an AI facing extraordinary liquidity stress that cannot be overcome through other means (for example, market funding) where (i) access to the Settlement Facilities and/or the Standby Liquidity Facilities is not applicable or otherwise not sufficient; and (ii) the HKMA considers that the liquidity stress situation of the AI could of itself, or through the spreading of contagion or through the undermining of public confidence, threaten or damage systemic stability in Hong Kong; and
- Resolution Facility: this is designed to provide for the scenario in which the resolution powers under the Financial Institutions (Resolution) Ordinance (Cap. 628) are exercised by the HKMA as the resolution authority. The Resolution Facility may be made available, at the discretion of the HKMA, having regard to systemic stability, for the purpose of ensuring that an AI which has (or whose holding company has) gone into resolution in Hong Kong has sufficient liquidity to meet its obligations, until such time as the AI is able to transition back to market-based funding.
For further details, please refer to the updated Liquidity Facilities Framework on the HKMA’s website.