Designation of Domestic Systemically Important Authorized Institutions
The Hong Kong Monetary Authority (HKMA) has completed its annual
assessment of the list of Domestic Systemically Important Authorized
Institutions (D-SIBs). Based on the assessment results, the list of
authorized institutions designated as D-SIBs remains unchanged
compared to the list of D-SIBs published by the HKMA on 29 December
2023. The latest list of D-SIBs is shown in the Annex.
Under
the D-SIB framework, each of the authorized institutions designated as
a D-SIB will be required to include a Higher Loss Absorbency (HLA)
requirement into the calculation of its regulatory capital buffers
within a period of 12 months after the formal notification of its
designation. The HLA requirement applicable to a D-SIB (expressed as a
ratio of an authorized institution’s Common Equity Tier 1 (CET1)
capital to its risk-weighted assets as calculated under the Banking
(Capital) Rules) ranges between 1% and 3. 5% (depending on the
assessed level of the D-SIB’s systemic importance). Compared to the
list of D-SIBs published on 29 December 2023, there is no change to
the HLA requirements applied to the designated D-SIBs.
Further details about the decision can be found on the HKMA
website (Systemically Important Authorized Institutions (SIBs)).
Background
1. D-SIB framework in Hong Kong
The
Banking (Capital) Rules and the HKMA’s regulatory framework for D-SIBs
follow the provisions in “A framework for dealing with domestic
systemically important banks” issued by the Basel Committee on Banking
Supervision in October 2012, by enabling the Monetary Authority (i) to
designate an authorized institution as a D-SIB if the Monetary
Authority considers the authorized institution to be of systemic
importance in the context of the Hong Kong banking and financial
system and (ii) to require an authorized institution designated as a
D-SIB to be subject to an HLA capital buffer.
The rationale
for imposing an HLA requirement on D-SIBs is to reduce any probability
of them becoming non-viable. This is considered both prudent and
justified in view of the greater impact that they could have, in the
unlikely event of their failure, on the domestic financial system and
the local economy more broadly.
2. HLA requirement for
authorized institutions designated as D-SIBs
The Monetary
Authority is empowered under sections 3U and 3V of the Banking
(Capital) Rules to designate D-SIBs and to determine an HLA
requirement for each of these D-SIBs by reference to the degree of
domestic systemic importance which the Monetary Authority assesses
them to bear. To achieve this aim, the HKMA’s regulatory framework for
D-SIBs provides for authorized institutions designated as D-SIBs to be
allocated to different HLA “buckets”. This differentiated approach
reflects the diversified nature and varying degrees of systemic
importance of authorized institutions in Hong Kong.
The
designated D-SIBs must apply the HLA in the calculation of their
regulatory capital buffers within 12 months of the formal notification
of their designation. There are five HLA buckets in total ranging from
1% to 3. 5%. While only the first four buckets (i. e. from 1% to 2.
5%) have been populated so far, the framework includes an empty 3. 5%
bucket to encourage D-SIBs to refrain from becoming even more
systemically important.
The HLA applied to a D-SIB serves
(together with the Countercyclical Capital Buffer) as an extension of
the Basel III Capital Conservation Buffer. Accordingly, if and when a
D-SIB’s CET1 capital ratio falls within the extended buffer range, the
D-SIB will be subject to restrictions on the discretionary
distributions it may make. The effect of this is that D-SIBs will be
required to retain earnings in order to bolster their regulatory
capital. Hong Kong Monetary Authority 31 December 2024