ज्ञ
FRIDAY, MARCH 7, 1986
CAPITAL TO RISK ASSETS RATIO
THE BILL INTRODUCES A NEW RATIO, A CAPITAL TO RISK ASSETS RATIO, TO APPLY TO ALL BANKS AND DEPOSIT-TAKING COMPANIES INCORPORATED IN HONG KONG. ALTHOUGH THE EXISTING LEGISLATION PRESCRIBES MINIMUM CAPITAL REQUIREMENTS FOR BANKS AND DEPOSIT- TAKING COMPANIES, SUCH REQUIREMENTS BEAR NO RELATIONSHIP TO THE AMOUNT AND RISKINESS OF THE ASSETS THEY SUPPORT. THE NEW RATIO IS DESIGNED TO REMEDY THAT DEFICIENCY.
THE CAPITAL TO RISK ASSETS RATIO HAS BEEN SET AT 5 PER CENT, BUT THE COMMISSIONER HAS THE POWER TO INCREASE THE RATIO FOR PARTICULAR INSTITUTIONS TO NOT MORE THAN 8 PER CENT IN THE CASE OF BANKS AND TO NOT MORE THAN 10 PER CENT IN THE CASE OF DEPOSIT- TAKING COMPANIES, THE METHOD OF CALCULATION OF THE RATIO, TOGETHER WITH THE CAPITAL BASE AND THE RISK ASSETS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSES OF THAT CALCULATION, ARE CONTAINED IN THE THIRD SCHEDULE TO THE BILL.
A CONTRAVENTION OF THE RATIO IS NOT IN ITSELF AN OFFENCE, BUT IT IS AN OFFENCE TO FAIL TO REPORT THE CONTRAVENTION TO THE COMMISSIONER, OR TO TAKE REMEDIAL ACTION REQUIRED BY THE COMMISSIONER FOR THE INSTITUTION TO COMPLY WITH THE RATIO.
THIS NEW REQUIREMENT ON CAPITAL ADEQUACY WILL NOT APPLY TO HONG KONG BRANCHES OF FOREIGN INSTITUTIONS BECAUSE, IN ACCORDANCE WITH ACCEPTED INTERNATIONAL PRACTICE, SUPERVISION OF A DEPOSIT- TAKING INSTITUTION'S CAPITAL ADEQUACY IS THE RESPONSIBILITY OF THE AUTHORITIES IN THE PLACE WHERE THE INSTITUTION IS INCORPORATED.
SINCE THESE PROVISIONS PLACE A SUBSTANTIAL NEW REQUIREMENT ON THE INSTITUTIONS CONCERNED. IT IS PROPOSED THAT A LONG TRANSITIONAL PERIOD OF, SAY, TWO YEARS WOULD BE ALLOWED.
LIQUIDITY RATIO
THE BILL INTRODUCES NEW AND SIMPLIFIED LIQUIDITY REQUIREMENTS TO REPLACE THOSE IN THE EXISTING LEGISLATION. IT REQUIRES AUTHORISED INSTITUTIONS TO MAINTAIN LIQUID ASSETS FOR ALL LIABILITIES MATURING OR CALLABLE WITHIN ONE MONTH, AT A RATIO OF NOT LESS THAN 25 PER CENT IN ANY CALENDAR MONTH. THE COMMISSIONER MAY IMPOSE ADDITIONAL LIQUIDITY REQUIREMENT ON ANY INSTITUTION AS NECESSARY.
THE METHOD OF CALCULATION OF THE RATIO, TOGETHER WITH THE LIABILITIES AND ASSETS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSES OF THAT CALCULATION, ARE CONTAINED IN THE FOURTH SCHEDULE TO THE BILL.
THE SANCTIONS