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Revised capital rules and new liquidity rules for banks gazetted

     The Banking (Capital) (Amendment) Rules 2014 and the Banking (Liquidity) Rules were gazetted today (October 24) to implement the second phase of Basel III requirements scheduled to take effect on January 1, 2015.

     Building on the revised minimum capital requirements introduced in 2013 (i.e. the first phase of Basel III requirements), the second phase encompasses:

(a) a series of capital buffers (i.e. a Capital Conservation Buffer, a Countercyclical Capital Buffer and, for banks regarded as being systemically important, a Higher Loss Absorbency Requirement) to incentivise banks to build up and hold capital that they can draw upon, if and when necessary, to absorb shocks arising from any financial and economic stress; and

(b) a Liquidity Coverage Ratio to ensure banks maintain a sufficient pool of high-quality liquid assets to withstand short-term liquidity risks.

     A spokesperson for the Financial Services and the Treasury Bureau said, "The implementation of the second phase of Basel III capital and liquidity requirements will further bolster the resilience of banks and the banking system against financial shocks. It will also bring Hong Kong on par with the latest international regulatory standards. This is important to Hong Kong as a major international banking and financial centre."

     A spokesperson for the Hong Kong Monetary Authority said, "We have closely engaged the banking sector, through consultation, in formulating the relevant rules and supplementary guidance for implementing the capital and liquidity standards in the second phase of Basel III requirements. Local authorised institutions are generally well capitalised, with an average capital adequacy ratio of 16.1 per cent as at the end of June 2014. We believe that the banking sector is well prepared to implement the requirements."

     The Legislative Council enacted the Banking (Amendment) Ordinance 2012 in February 2012 to provide the legal framework for implementation in Hong Kong of the Basel III requirements. The provisions in the Banking (Amendment) Ordinance 2012 relating to the implementation of the Basel III capital standards have been in effect since January 2013. The Administration gazetted a Commencement Notice today to bring into operation the remaining provisions necessary for the implementation of the Basel III liquidity standards.

     The above subsidiary legislation will be tabled before the Legislative Council at its sitting on October 29, 2014 for negative vetting.

Ends/Friday, October 24, 2014
Issued at HKT 10:00


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