Regulatory Alerts2005-07-29
Added · Updated
Impact of the New Hong Kong Accounting Standards - Regulatory Reserve
The Hong Kong Monetary Authority clarifies that the Regulatory Reserve serves as a supervisory tool to bridge the conceptual gap between backward-looking accounting provisions and forward-looking regulatory requirements. This reserve prevents substantial write-backs of provisions that do not reflect improvements in asset quality, thereby ensuring that new accounting standards do not reduce the overall level of provisions held by Authorized Institutions. The Regulatory Reserve is designed to neutralize accounting changes on provisioning levels and will gradually become less significant as credit risk models become more sophisticated.
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