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Hong Kong’s Approach to Financial Stability

  • Dong He

    (Hong Kong Monetary Authority and Hong Kong Institute for Monetary Research)

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This article summarizes the characteristics of Hong Kong’s approach to financial stability. It starts with an introduction to the macroeconomic policy setting and with a conceptual discussion on why financial cycles are likely to be an intrinsic feature of market economies. It then outlines the author’s interpretation of the regulatory and supervisory philosophy in Hong Kong and describes in more detail the framework and conduct of macroprudential policies regarding housing market risks. The financial policy framework in Hong Kong emphasizes the importance of limiting the degree of leverage on the balance sheets of both the private and public sectors so that households, firms, and the government can weather financial cycles. Hong Kong’s approach to financial stability therefore has two broad elements: first, macroprudential measures to lean against credit growth and the buildup of leverage in the upswing phases of financial cycles; and secondly, contingency planning and stress testing to ensure that participants in the financial system would be able to survive as going concerns in the downswing phases of financial cycles.

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Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 9 (2013)
Issue (Month): 1 (March)
Pages: 299-313

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Handle: RePEc:ijc:ijcjou:y:2013:q:1:a:12
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  1. Frank Leung & Kevin Chow & Gaofeng Han, 2008. "Long-term and Short-term Determinants of Property Prices in Hong Kong," Working Papers 0815, Hong Kong Monetary Authority.
  2. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
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