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78.1

Resolution

A stable financial system is contingent upon individual financial institutions (FIs) being resilient and capable of continuing provision of critical financial functions which are essential to the functioning of the Hong Kong economy. The HKMA as banking supervisor plays a key role in safeguarding financial stability by taking or imposing measures designed to strengthen banks’ resilience to shocks.

However, there may still be rare cases where notwithstanding a stringent supervisory regime an FI nevertheless comes under such severe stress that it becomes non-viable. So a necessary core feature of the resolution framework is to ensure that FIs can fail in an orderly manner without significant adverse consequences for the financial system or the wider economy, whilst seeking to avoid exposing taxpayers to losses.

Resolution is an administrative process which enables authorities to achieve the above by using the powers available under the resolution regime to intervene and to manage the failure of an FI in circumstances where such failure could have adverse systemic consequences. Resolution differs from existing insolvency procedures in that it is designed to preserve the continued provision of critical financial functions by an FI whilst still imposing the costs of failure on the shareholders and certain creditors of the FI.

The Financial Institutions (Resolution) Ordinance establishes the legal basis for a cross-sector resolution regime in Hong Kong, under which the Monetary Authority is the resolution authority for banking sector entities including all authorized institutions. The Monetary Authority is also designated as the lead resolution authority for the cross-sectoral groups in Hong Kong that involve both banking sector entities and securities and futures sector entities. The Monetary Authority’s function as a resolution authority is supported by the Resolution Office within the HKMA. The Resolution Office is operationally independent and has a direct reporting line to the Chief Executive of the HKMA (i.e. the Monetary Authority).

References

7 July 2017 Operational Independence of the Monetary Authority as
Resolution Authority (RA-1)
Last revision date: 7 July 2017
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