Hong Kong Regulations

BANKING (CAPITAL) RULES - SECT 10

Measures which may be taken by Monetary Authority if authorized institution using BSC approach or IRB approach no longer satisfies specified requirements

(1) Where—

   (a)  an authorized institution uses the BSC approach to calculate its
        credit risk for non-securitization exposures; and

   (b)  the Monetary Authority is satisfied that, if the institution were to
        make a fresh application under section 6(1) for approval to use the
        BSC approach to calculate its credit risk for non-securitization 
        exposures, the approval would be refused by virtue of section 6(3),
        the Monetary Authority may, by notice in writing given to the
        institution, require the institution to use the STC approach to
        calculate its credit  risk for non-securitization exposures instead of
        the BSC approach.

(2) A notice given to an authorized institution under subsection

(1) may require the institution to use the STC approach to calculate its
credit risk for non-securitization exposures in respect of all of its
non-securitization exposures, or such parts of its non-securitization 
exposures as specified in the notice, beginning on such date, or the
occurrence of such event, as specified in the notice.

(3) An authorized institution shall comply with the requirements of a notice
given to it under subsection (1).

(4) Where—

   (a)  an authorized institution uses the IRB approach to calculate its
        credit risk for non-securitization exposures; and

   (b)  the Monetary Authority is satisfied that, if the institution were to
        make a fresh application under section 8(1) for approval to use the
        IRB approach to calculate its credit risk for non-securitization 
        exposures, the approval would be refused by virtue of section 8(3)
        (but, insofar as Schedule 2 is concerned, only section 1 of that
        Schedule shall be taken into account), the Monetary Authority may take
        one or more of the measures set out in subsection (5).

(5) The measures referred to in subsection (4) are that—

   (a)  the Monetary Authority may, by notice in writing given to the
        institution, require the institution to use the STC approach to
        calculate its credit risk for non-securitization exposures instead of
        the IRB  approach in respect of all of its
        non-securitization exposures, or such parts of its
        non-securitization exposures as specified in the notice, beginning on
        such date, or the occurrence of such event, as specified in the
        notice;

   (b)  the Monetary Authority may, by notice in writing given to the
        institution, require the institution to—

        (i)    submit to the Monetary Authority a plan, within such period

(being a period which is reasonable in all the circumstances of the case) as
specified in the notice, which satisfies the Monetary Authority that, if it
were implemented by the institution, the institution would cease to fall
within subsection (4)(b) within a period which is reasonable in all the
circumstances of the case; and

        (ii)   implement the plan;

   (c)  the Monetary Authority may, by notice in writing given to the
        institution, advise the institution that the Monetary Authority is
        considering exercising the Monetary Authority's power under section
        101 of the Ordinance to vary the capital adequacy ratio of the
        institution by increasing it;

   (d)  the Monetary Authority may, by notice in writing given to the
        institution, require the institution to be subject to a capital floor

(within the meaning of section 139(1)) for such period, or until the
occurrence of such event, as specified in the notice (for which purpose
section 226 applies to the calculation of the capital floor and the Monetary
Authority may specify in the notice an adjustment factor for the calculation);
and

   (e)  the Monetary Authority may, by notice in writing given to the
        institution, require the institution to reduce its credit exposures in
        such manner, or adopt such measures, as specified in the notice which,
        in the opinion of the Monetary Authority, will cause the institution
        to cease to fall within subsection (4)(b) within a period which is
        reasonable in all the circumstances of the case, or will otherwise
        mitigate the effect of the institution falling within that subsection.

(6) An authorized institution shall comply with the requirements of a notice
given to it under subsection (5)(a), (b), (d) or (e).

(7) For the avoidance of doubt, it is hereby declared that—

   (a)  the requirements specified in Schedule 2 are also applicable to and in
        relation to an authorized institution using the IRB approach to
        calculate its credit risk in respect of the use by the institution of
        a rating system to which a significant change referred to in
        section 8(4)(b) relates (whether or not the institution has, in
        respect of that change, been given the prior consent referred to in
        section 8(4)(b)), and subsection (4)(b) and the other provisions of
        this section apply to the institution accordingly; and

   (b)  subsection (5)(c) does not operate to prejudice the generality of the
        circumstances in respect of which the Monetary Authority may exercise
        the power under section 101 of the Ordinance in the case of an
        authorized institution to which that subsection applies.