Banking Legislation, Policies and Standards Implementation

Capital is vital to the operations of banks. Adequate capital helps enhance bank's financial strengths and provides additional buffers to ensure sufficient funds to handle daily operations in the event of an emergency.

The leverage ratio (LR) is a ratio of the bank's Tier 1 capital to its exposure measure as defined under the Banking (Capital) Rules.

The Countercyclical Capital Buffer (CCyB) is part of the Basel III regulatory capital framework. In essence it is a mechanism to build up additional capital during periods of excessive credit growth when risks of system-wide stress are observed to be growing markedly. This capital can then be “released” when the credit cycle turns to absorb losses and enable the banking system to continue lending in the subsequent downturn.

Systemically Important Authorized Institutions (SIBs) are banks whose impact, in the event of distress or failure, could cause significant disruption to the financial system and ultimately, the broader economy. In recognition of the additional risks posed by SIBs, they are subject to specifically tailored regulatory and supervisory measures, including capital surcharges in the form of higher loss absorbency (HLA) capital buffers; more intensive supervision (particularly in areas such as risk management and governance) and prioritised recovery and resolution planning.

Liquidity of an authorized institution (AI) is its ability to meet payment obligations as they fall due. Banks must maintain sufficient liquidity to handle daily operational activities such as cash withdrawal from depositors, interbank clearing, repayment of debts, etc.

Banks bear credit risk when granting loans to counterparties, and are exposed to the risk of loss in the event of the borrower's default.

The disclosure requirements applicable to authorized institutions (AIs) are provided mainly in the Banking (Disclosure) Rules (BDR) issued by the Monetary Authority (MA) under section 60A of the Banking Ordinance. All AIs, except for those exempted such as smaller banks, are required to comply with the disclosure requirements. The Supervisory Policy Manual (SPM) module CA-D-1 “Guideline on the Application of the Banking (Disclosure) Rules” provides guidance on the interpretations of certain provisions of the BDR.