A stable financial system is contingent upon financial institutions (FIs) being resilient and capable of continuing the provision of critical financial functions which are essential to the functioning of the Hong Kong economy, during both peacetime and periods of stress. The Monetary Authority, as a supervisory authority, plays a key role in safeguarding financial stability by taking measures designed to strengthen authorized institutions’ resilience to shocks.
However, there may still be rare cases where, no matter how stringent a supervisory regime, an FI may come under such severe stress that it becomes, or is likely to become, non-viable. The resolution regime aims to ensure that FIs can fail in an orderly manner without significant adverse consequences for the financial system or the wider economy, while 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 in and to manage the failure of an FI in circumstances where such failure could otherwise have adverse consequences for the financial system.
Resolution differs from insolvency procedures in that it is designed to preserve the continued provision of critical financial functions by the failing FI whilst imposing the costs of failure on the shareholders and creditors of the FI.