On 31 March 2009, the HKMA issued a circular announcing that it will continue to conduct foreign-exchange swaps and term repo transactions under its market operations to provide Hong Kong-dollar liquidity assistance to licensed banks, if needed.
With effect from 1 April 2009:
- the HKMA will resume the normal operation of the Discount Window (that is, using only Exchange Fund paper for overnight repo); and
- the Base Rate will be set at either 50 basis points above the prevailing US Federal Funds Target Rate or the average of the five-day moving averages of the overnight and one-month HIBORs, whichever was higher.
In addition, the HKMA has made the following amendments to its Lender of Last Resort (LOLR) Policy Statement to expand the types of assets and facilities eligible for obtaining Hong Kong-dollar liquidity:
- foreign exchange swaps will be incorporated as one of the basic instruments which would be used by the HKMA to provide LOLR support;
- the definition of eligible securities for repos will be expanded to include securities in foreign currencies (with acceptable ratings); and
- as one of the basic instruments that would be used by the HKMA to provide LOLR support, provision of credit facilities will become available against security of placements with other banks which are acceptable to the HKMA. This is in addition to the original arrangements that allow only residential mortgages as collateral.
The HKMA has also revised the cap which the HKMA will normally be prepared to provide LOLR support for individual institutions from HK$10 billion to HK$25 billion to reflect the increase in the capital base of locally incorporated authorised institutions over the past decade. Specific prior approval of the Financial Secretary will be required if it is considered necessary to provide funding support in excess of the cap.