Liquidity Support to Banks
The HKMA operates a discount window which provides overnight liquidity to banks against eligible collateral to facilitate interbank settlement. In addition, the HKMA has put in place measures to provide liquidity assistance to banks under various scenarios. The provision of liquidity support to banks will help promote the smooth operation of the interbank market and also enhance the confidence in the Hong Kong banking system. Banks experiencing short-term funding difficulties, either due to liquidity strains in the money markets or any other reasons specific to the bank, may approach the HKMA to request for short-term liquidity. Depending on the situation, funds could be provided under several channels, including the lender of last resort, FX swaps and term repos and the discount facility for Hong Kong Government Bonds. In addition to Hong Kong dollar liquidity, the HKMA is also ready to provide RMB funding under the RMB liquidity facility, with a view to facilitate the long term development of offshore RMB business in Hong Kong.
FX Swaps and Term Repos
For system-wide Hong Kong dollar liquidity shortage, the HKMA may provide liquidity assistance to banks via FX swaps and term repos against Hong Kong dollar or foreign-currency denominated securities of acceptable credit quality. These were originally two of the five temporary measures introduced in September 2008 during the global financial crisis to help relieve tensions in the local interbank market. Upon expiry of the five temporary measures at end-March 2009, we decided to incorporate FX swaps and term repos into our ongoing market operations to offer Hong Kong dollar liquidity assistance to banks if needed, on a case-by-case basis.
Lender of Last Resort
In the event of a bank facing serious funding difficulties, the HKMA may decide to provide Lender of Last Resort (LoLR) support if it is satisfied that the bank’s failure may pose systemic risk. Under the LoLR framework, the HKMA can employ a wide range of instruments, such as repos, FX swaps and credit facilities, to provide funding support to a problem bank. The range of eligible collateral for LoLR support includes bank placements, residential mortgage loans and investment-grade securities denominated in HKD or other currencies. Detail of the framework is stated in the LoLR policy statement last revised in March 2009.
Discount Facility for Hong Kong Government Bonds
The HKMA introduced a discount facility for Hong Kong Government Bonds (GBs) with effect from 15 December 2014 so as to provide greater flexibility for banks to manage liquidity. The facility will provide up to a total of HK$10 billion overnight liquidity against a sale and repurchase of GBs. The HKMA would obtain funding from the market to maintain the size of the Aggregate Balance as needed.
RMB Liquidity Facility
The RMB Liquidity Facility was introduced to address potential short-term liquidity tightness in the offshore RMB market, which may be due to seasonal factors or capital market activities. The facility was first launched in June 2012. In the light of experience in operating the facility and developments in the offshore RMB market, the HKMA has made various enhancements to the facility over the years. Banks are welcome to use the facility to meet short-term funding needs. Under the RMB Liquidity Facility, banks may now obtain from the HKMA：
(i) overnight RMB funds available on the same day,
(ii) 1-day RMB funds available on the next day,
(iii) 1-week RMB funds available on the next day, and
(iv) intraday RMB funds.
Terms and conditions of the RMB Liquidity Facility (PDF File, 49KB)
Circulars related to the RMB Liquidity Facility:
- Introduction of the 1-week repo on T+2 basis under the RMB Liquidity Facility (15 June 2012)
- Cut-off time for banks’ borrowing request extended to 1:30 pm (25 July 2012)
- Settlement of repo changed to T+1 from T+2 (16 January 2013)
- Introduction of overnight repo for same day settlement and 1-day repo for T+1 settlement (26 July 2013)
- Introduction of intraday RMB repo (10 November 2014)
- Enhancement of overnight repos, including extension of operating hours and automated DvP settlement (8 December 2014)
- Refinement of the calculation of overnight and intraday repo rates, and the charging arrangement for intraday repo converted into overnight repo (2 March 2015)
- Extension of operating hours of Intraday Repo under the Renminbi (RMB) Liquidity Facility (20 July 2015)
- Intraday and Overnight Repo under the Renminbi (RMB) Liquidity Facility – Replacement of existing tripartite arrangement by a bilateral arrangement (23 November 2015)
- Refinement of the Renminbi Liquidity Facility (31 March 2016)
- Renminbi (RMB) Liquidity Facility – Expansion of Collateral (2 June 2016)