Memorandum of Understanding between the Hong Kong Monetary Authority and De Nederlandsche Bank

The Hong Kong Monetary Authority (HKMA) and De Nederlandsche Bank N.V. (DNB) jointly announced today (Tuesday) the signing of a Memorandum of Understanding (MoU) for a liquidity arrangement to be applied for non-routine situations.

Under the arrangement, Dutch banks operating in Hong Kong or Hong Kong banks operating in the Netherlands can approach the HKMA or DNB to ask for liquidity assistance if needs arise. This arrangement, which aims to enhance the banks' confidence in carrying out their business in the two markets, will become effective immediately. Such arrangements between central banks are conducive to overall monetary and financial stability and in that respect work similar as swap arrangements, currently in place between several central banks.

The provision of liquidity assistance will be based on cash collateral, and it will remain at the sole discretion of the respective central bank. If a Dutch bank in Hong Kong approaches the HKMA to request the activation of the arrangement and the request is accepted, the Dutch bank will deliver euro cash collateral to the HKMA. Vice versa, a Hong Kong bank in The Netherlands may request the provision of liquidity assistance against cash collateral delivered to DNB.

The advantage of this arrangement is that the liquidity providing central bank can quickly access an alternative and reliable source of collateral in addition to those under routine liquidity arrangements.

Mr Joseph Yam, the HKMA Chief Executive, said "This liquidity arrangement represents a new area of monetary co-operation between the HKMA and DNB, which should enhance financial stability in the two areas with greater assurance about availability of back-up liquidity under the new arrangement."

Mr Nout Wellink, Governor of DNB, said "This type of linkage between central banks increases their ability to help banks in non-routine situations where liquidity needs cannot be solved using routine procedures."

Hong Kong Monetary Authority
De Nederlandsche Bank
26 May 2009