On 24 October 2014, the Hong Kong SAR Government published the Banking (Capital) (Amendment) Rules 2014 and the Banking (Liquidity) Rules to implement the second phase of Basel III requirements.
The second phase encompasses a series of capital buffers to incentivise banks to build up and hold capital that they can draw upon to enable them to absorb shocks arising from any financial and economic stress. The second phase also requires banks to maintain a sufficient pool of high-quality liquid assets to withstand short-term liquidity risk.
"The implementation of the second phase of Basel III capital and liquidity requirements will further bolster the resilience of banks and the banking system against financial shocks," said a spokesperson for Hong Kong's Financial Services and the Treasury Bureau. "It will also bring Hong Kong on par with the latest international regulatory standards."
According to the Hong Kong Monetary Authority (HKMA), local financial institutions are "well-prepared to implement the requirements" as their average capital adequacy ratio was at 16.1 percent at the end of June 2014. Moreover, HKMA stated that the requirements were formulated after consulting the local banking sector.
The above legislation will be tabled before Hong Kong's Legislative Council on 29 October 2014 for negative vetting.
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