On 14 October 2008, the Financial Secretary announced the following two new precautionary measures to further strengthen confidence in Hong Kong's banking system. Both measures took immediate effect and will remain in force until the end of 2010:
- Increase the level of coverage of deposit protection
The Exchange Fund will be used to guarantee the repayment of all customer deposits held with all authorised institutions in Hong Kong (Deposit Guarantee), following the principles of the existing Deposit Protection Scheme, but including restricted-licence banks and deposit-taking companies as well as licensed banks. The Deposit Guarantee applies to all Hong Kong-dollar and foreign-currency deposits held with authorised institutions in Hong Kong, including those held with Hong Kong branches of overseas institutions. The Deposit Guarantee covers the amount of such deposits in excess of that protected under the Deposit Protection Scheme.
- Establishment of a contingent bank capital facility
The Financial Secretary has approved the establishment of a contingent bank capital facility (CBCF) which may be used to make available additional capital to locally incorporated licensed banks. The necessary funds for the injection of CBCF capital into local banks will be drawn from the Exchange Fund. A review will be conducted by the HKMA before the end of 2010 to determine whether the CBCF continues to be necessary. The form and terms of any CBCF capital will be decided on the basis of individual circumstances, and local banks receiving any such capital will be obliged to accept conditions or restrictions deemed appropriate by the HKMA to safeguard the financial commitment represented by the CBCF.
A copy of the circular is available on the HKMA website.