Book contents
- A Regulatory Design for Financial Stability in Hong Kong
- A Regulatory Design for Financial Stability in Hong Kong
- Copyright page
- Contents
- Acknowledgments
- Abbreviations
- 1 Introduction
- Part I A Financial History of Hong Kong
- Part II The Regulatory Models of Financial Supervision
- Part III Contemporary Regulatory and Supervisory Approaches
- Part IV Banking Regulation and Supervision in Hong Kong
- Part V Resolution Regimes and Crisis Management Mechanisms
- 10 Deposit Protection and the Lender of Last Resort
- 11 Resolution Regimes and Systemically Important Banks
- 12 Central Clearing Counterparties and Derivatives
- Part VI Financial Market Integration with the Mainland
- Index
10 - Deposit Protection and the Lender of Last Resort
from Part V - Resolution Regimes and Crisis Management Mechanisms
Published online by Cambridge University Press: 25 August 2022
- A Regulatory Design for Financial Stability in Hong Kong
- A Regulatory Design for Financial Stability in Hong Kong
- Copyright page
- Contents
- Acknowledgments
- Abbreviations
- 1 Introduction
- Part I A Financial History of Hong Kong
- Part II The Regulatory Models of Financial Supervision
- Part III Contemporary Regulatory and Supervisory Approaches
- Part IV Banking Regulation and Supervision in Hong Kong
- Part V Resolution Regimes and Crisis Management Mechanisms
- 10 Deposit Protection and the Lender of Last Resort
- 11 Resolution Regimes and Systemically Important Banks
- 12 Central Clearing Counterparties and Derivatives
- Part VI Financial Market Integration with the Mainland
- Index
Summary
Managing banking sector liquidity in financial crises has historically depended on deposit protection and the lender of last resort. Deposit protection assuages market panics by guaranteeing that depositors will be paid if a bank fails. The lender of last resort is a capital injection to preclude a failure when an illiquid yet solvent bank has exhausted all other funding sources. This chapter analyzes deposit protection, the lender of last resort, and how different supervisory structures influence the implementation of these bank stabilization tools. Moreover, certain structures can adversely affect supervisors from fulfilling their financial stability mandates. Hong Kong is susceptible to a supervisory coordination failure from a statutory friction that prioritizes monetary over banking stability. A tension is created within the Hong Kong Monetary Authority which could compel the Financial Secretary to usurp control during a financial crisis. This tension exposes the Hong Kong Monetary Authority to macro-prudential underlap which could undermine its financial stability mandate. Despite these flaws, the statutory mandates of the Hong Kong Monetary Authority complement Hong Kong’s deposit protection and lender-of-last-resort policies, which have performed faultlessly over the past 20 years. However, neither approach has been sufficiently tested during this period.
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- A Regulatory Design for Financial Stability in Hong Kong , pp. 197 - 216Publisher: Cambridge University PressPrint publication year: 2022