Background In 2007, the soaring mortgage loan delinquencies and foreclosures in the United States triggered the sub-prime crisis and soon spread over the earth. In this survey, major causes with the sub-prime crisis and its affects on Hong Kong’s economy will be analyzed. Different steps made by government bodies and finance institutions to tackle this crisis will be reviewed also.
Lastly, evidence about the restoration of Hk will be provided. The sub-prime crisis
In 2007, the collapse of subprime mortgage-backed securities (MBSs) brought to an enormous loss amongst mortgage lenders. Many large economic firms which includes New Centaury Financial Company and Lehman Brothers Coalition Incorporation announced bankruptcy, which will resulted in a downturn inside the global financial market and a series of chain reactions spreading around the world afterwards. Influence of the sub-prime crisis around the Hong Kong finance institutions After the break out of the subprime crisis, the Hong Kong financial market shrank along with the global economic recession.
The stock market in Hong Kong rejected from noted high of 31, 000 in October 2007 to 20, seven-hundred in Drive 2008 (Diagram 1) while investors failures their assurance and withdrew money from your market. In addition, many banks had written down huge amount of money to get numerous sub-prime related investments. For example , HSBC wrote away US$17. 284 billion pertaining to potential loss in MBS or MBS related investments (HSBC 2008). Bank of China (Hong Kong) also wrote down HK$550m subprime-linked assets (Liu 2008). Finally, there was a credit crunch because of the uncertainty about the amount of MBS related assets held by simply banks and insurance companies.
As a result, many banks reduced loans to each other and increased the eye rate because of high credit risk. Brand new companies and corporations were not able to obtain fund to further develop and increase liquidity. Procedures undertaken by the regulators and financial institutions To be able to strengthen the confidence in the citizens and stabilize the banking system, the Hong Kong Deposit Security Board increased and changed the First deposit Protection Plan Bill this year. The 100 % pay in protection system of HÄSTKRAFTER $100, 500 was first released in 2008.
The amount of safety was elevated to HK$500, 000 in 2011. Besides, the Hong Kong Budgetary Authority has turned certain procedures to deal with the challenge. Firstly, HKMA announced a temporary policy which allowed accredited banks to get into to fluid assistance throughout the Discount Windows with US money assets and extended the duration of fluid assistance approximately three months on 30th September 2008. These measures helped to improve liquidity within the financial system and further ease demands in the interbank market (HKMA, 2008).
The Hong Kong Interbank Overnight Provided Rates lowered from 3% to 0. 3% in a few weeks time after the story of these procedures (HKMA, 2010). Secondly, the HKMA implemented a macro stress screening of the banking sector’s weakness to shock absorbers such as the sub-prime crisis. Meanwhile, HKMA used the macroeconomic credit risk models to boost the stress assessment of banks’ residential mortgage loans and other mortgage portfolios (Carse, 2008). The objective of this assessment is to support HKMA monitor the banking sector and avoid problems similar to sub-prime catastrophe from occurring in Hong Kong.
Financial institutions composed off large amount of money and tried to raise money in the market to improve their liquidity. Last season, HSBC announced a USD$17. several billion rights issue. Shareholders were presented five fresh ordinary stocks for every doze existing shares at a price of HK$28 per fresh share (HSBC, 2009). This helped HSBC to restore its capital-debt proportion and allowed it go over bad times without govt assistance. Provides Hong Kong economy fully restored? According to the statistic in 2011, the real GDP expansion rate was restored to 5% by -2. % in 2009. Plus the unemployment level was fallen to pre-crisis level, this decreased from 5. 4% in January 2009 to 3% in December 2011 (Hong Kong Census and Statistics Division, 2012). The supply of money is at an increasing tendency as well. The two M3 and domestic credit rating were creating a 10% embrace 2010, in comparison with a reduction in 2008 and 2009. As well as the inter-bank presented rate fallen to a very low level of 0. 09% (Hong Kong Census and Statistics Department, 2012). These numbers show that Hong Kong economic climate has renewed gradually to pre-crisis level.
However , there are certain hidden challenges. Firstly, regulators worry about the inflation injury in Hong Kong following the injection of trillions of funds in the market from your Federal Reserve. Since HÄSTKRAFTER dollar is usually linked with US dollar, the top increase in money supply in U. H dollar is going to in turn increase the pumpiing in Hong Kong. Secondly, the case of Lehman Brothers Tiny Bond indicates that current regulations upon financial products aren’t sufficient, little individual traders can be tricked easily.
Additional regulations and monitoring about financial products is necessary. Lastly, following your “lesson of subprime catastrophe, many people lost their belief economic investment which as a result limited the development of financial market in Hong Kong. To conclude, the subprime does not only cause a large number of adverse implications to the monetary crisis market which includes Hong Kong, but also delivers some invisible problems. The cooperation among government and financial institutions is vital to help Hong Kong economy get over the sub-prime crisis.
