Market misreads HK new bail-in powers

Author: Brian Yap | Published: 18 Jul 2017

Hong Kong has sent its strongest message yet on too-big-to-fail financial institutions by entrusting its banking regulator with new bail-in powers. But their misinterpretation has cause widespread concern.

On July 7 the former British colony became first Asian jurisdiction to introduce a revised resolution regime, designating the Hong Kong Monetary Authority (HKMA), the Insurance Authority and the Securities and Futures Commission (SFC) as resolution authorities. Under the new regime, the HKMA, the territory’s de facto central bank, now has powers to bail in certain additional bank liabilities  after additional tier 1 (AT1) and tier 2 bank capital instruments have been written down or converted.     

However, confusion of the interpretation of the protective arrangements embedded in the new regime, which is structured to ensure bank counterparties and creditors are treated fairly, has been reported.

"I’ve seen a notion in some press reports that somehow bail-in means...