March 2013 issue contents
Hong Kong's Approach to Financial Stability

by Dong He
Hong Kong Monetary Authority and Hong Kong Institute for Monetary Research


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.

JEL Codes: E58, G18, G28.

Full article (PDF, 15 pages 167 kb)