Hong Kong s Experience

Transcription

1 Cross Border Issues IMF Conference on Operationalizing Systemic Risk Monitoring Washington, D. C. 26 May 21 Hong Kong s Experience Dong He Executive Director (Research) Hong Kong Monetary Authority 1

2 Outline 1) Characteristics of cross-border banking in Hong Kong 2) Challenges in assessing systemic risks in cross-border banking 2

3 Heavy presence of world's largest banks in Hong Kong Number of overseas banks 2 Top 5 Top 51 to 1 Top 11 to 5 Number of authorized institutions Branches Subsidiaries Branches Subsidiaries Branches Subsidiaries Licensed banks Restricted licensed banks Deposit taking companies Note: Figures at the end of 29 Top 5 Top 51-1 Top 11 to 5 3

4 Large cross-border banking flows % of assets Lending to and borrowing from banks abroad HKD lending Foreign-currency lending HKD borrowing Foreign-currency borrowing 4

5 A major fund supplier US$ Bn Germany Switzerland Cayman Islands 371 Hong Kong Net external claims and liabilities vis-à-vis banks Belgium 161 Japan 146 Bahamas 13 (+) represents net claims Jersey 128 Luxembourg 96 Singapore France -546 Italy -38 Spain -366 Ireland -312 Netherlands -289 Australia -277 Sweden -171 Denmark -166 (-) represents net liabilities South Korea , UK -894 Note: Net external positions of banks in individual reporting economies. Source: BIS locational banking statistics, Sep-29 positions. 5

6 External claims/ liabilities vis-à-vis major economies External claims External liabilities 1% 17% 1% 51% 8% 46% 13% 12% 11% 9% China Singapore Japan UK USA Others 7% 6% China Singapore Japan UK USA Others Note: Figures are at the end February 21. 6

7 Different Business models (I) Customer deposits to fund overseas bank offices % of total liabilities 1 % of total assets Before crisis After crisis Before crisis After crisis Before crisis After crisis Before crisis After crisis Bank 1 Bank 2 Other liabilities Amount due to overseas offices Deposits from customers Deposits and balances from unconnected banks Bank 1 Bank 2 Other assets Amount due from overseas offices Investment securities Loans and receivables Notes: Before crisis: Dec-27 After crisis: Jun-29 7

8 Different Business models (II) Liquidity management centre for banking group % of total liabilities 1 % of total assets Before crisis After crisis Before crisis After crisis Before crisis After crisis Before crisis After crisis Bank 1 Bank 2 Bank 1 Bank 2 Other liabilities Amount due to overseas offices Deposits from customers Deposits and balances from unconnected banks Other assets Amount due from overseas offices Investment securities Loans and receivables Notes: Before crisis: Dec-27 After crisis: Jun-29 8

9 % of total liabilities 1 Different Business models (III) Overseas bank offices funding to support local non-bank lending % of total assets Before crisis After crisis Before crisis After crisis Bank 1 Bank 2 Other liabilities Amount due to overseas offices Deposits from customers Deposits and balances from unconnected banks Notes: Before crisis : Dec-27 for Bank 1 After crisis : Jun-29 Jun-28 for Bank 2 Before crisis After crisis Before crisis After crisis Bank 1 Bank 2 Other assets Amount due from overseas offices Investment securities Loans and receivables 9

10 Where do systemic risks arise? High degree of interconnectivity may imply large spillovers When a crisis erupts elsewhere Banks relying on funding support from overseas may face a sudden dry up of liquidity Banks supplying funding to overseas may suffer credit losses and possibly liquidity squeeze Dislocation of money and foreign exchange markets 1

11 6, 5, 4, 3, 2, 1, Evidence during the crisis (I) HKD billion Claims on banks Liabilities to banks Claims on non-bank customers Liabilities to non-bank customers 11

12 Evidence during the crisis (II) The interbank market 6 5 % Overnight HIBOR quoted by local and overseas banks Spread between overseas banks and local banks Overseas banks Decomposition of 3-month Hong Kong dollar HIBOR OIS spreads Liquidity factor Credit factor Basis points Local banks HIBOR - OIS spread Jul-7 Oct-7 Jan-8 Apr-8 Jul-8 Oct-8 12

13 Evidence during the crisis (III) The forex swap market Interest rate (% p.a.) Aug 7 Onset of crisis 14 Mar 8 Bear Stearns acquired 15 Sep 8 Lehman failure Three-month FX swap-implied USD rate CIP deviation (in bps) 8 Deviation from CIP (rhs) Three-month USD LIBOR -8 1 Jan-7 Apr-7 Jul-7 Oct-7 Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr

14 Challenges in assessing systemic risks in cross-border banking 1. A better understanding of different business models of global banking Tradeoffs between efficiency and stability The use of funding hubs and the role of international financial centres 2. A better understanding of interconnectivity of cross-border funding markets Shock transmission channels 3. More information on maturity/currencies mismatches, and off-balance sheet positions Mechanisms for more effective information sharing 14

15 - End of presentation - Many thanks for your attention