HK proposed regime for FIs negative for unsecured creditors

    Moody's Investors Service said Hong Kong's proposed resolution regime for financial institutions  is credit negative for unsecured creditors.
  Last Wednesday, the Hong Kong government published a second-round consultation paper on its proposed resolution regime for Hong Kong financial institutions. The consultation paper, which underscores the government's intention to limit the use of public funds in the resolution of distressed financial institutions, contains responses to feedback to the first-round consultation published in January 2014, as well as implementation details for the resolution regime.
  Details in the consultation paper weaken the likelihood of government support, and are thus credit negative for unsecured creditors of Hong Kong banks and insurance companies, the credit rating agency noted.
  In particular, the latest consultation notes that the Hong Kong Monetary Authority has already begun to roll out its recovery planning requirements for local banks and states clearly that recovery plans should be proportionate to the nature, scale and complexity of a bank's operations. The authorities also propose that they be vested with powers to require banks' affiliated entities to provide essential services in resolution to ensure operational continuity. Moody's sees these as further steps by regulators to reduce obstacles to the resolution of distressed banks, and they should facilitate the resolution of banks without government support.