Review of banks leads to call for `mega' regulator

Review of banks leads to call for `mega' regulator

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Although Hong Kong may have escaped the worst of the US subprime debacle and Fannie Mae and Freddie Mac's woes, former Hong Kong Monetary Authority deputy chief executive David Carse wants a "mega" regulator to strengthen the financial system.
"The Hong Kong banking sector is in robust condition ... It is relatively unscathed by the subprime crisis ... As for banks' holdings of paper notes of Fannie Mae and Freddie Mac, that is not much," said Carse, who was appointed in December by the HKMA to give local banks a full "body check."

Announcing his findings yesterday, Carse called for closer cooperation between regulators or even closer ties with their mainland counterparts.

"There's an erosion of financial boundaries in Hong Kong because of the growth of wealth management products," he said.

Subprime mortgages, for example, are a cross-market product.

Mortgage loans are originally banking products, but when securitized, as in the CDOs at the heart of the subprime crisis, they also relate to the securities industry.

While the review was conducted, some banks complained that they need to send the same piece of information to the HKMA and the SFC when a cross-market investment product is under investigation.

"It is difficult to disentangle securities, banking or insurance products ... As time goes by, the regulatory structure should be changed to accommodate the fact that businesses are moving closer together," Carse said.

Cooperation with the China Securities Regulatory Commission also needs to be considered.

"Hong Kong banks are basically dealing with local customers. The risks are relatively low. But when they branch off to deal with other types of customers, the method of credit assessment needs to be changed," Carse said.

The HKMA will carry out a public consultation on the report until October 31 and formulate policies if necessary.