Regulatory Alerts2005-07-29
Added · Updated
Impact of the New Hong Kong Accounting Standards - Regulatory Reserve
The Hong Kong Monetary Authority issued this circular to clarify the purpose of the Regulatory Reserve (RR) for Authorized Institutions following concerns about potential misinterpretation under new accounting standards. The regulator defines the RR as a supervisory tool designed to bridge the conceptual gap between backward-looking accounting provisions and forward-looking regulatory requirements, thereby preventing artificial reductions in provisioning levels. This reserve serves to neutralize the impact of accounting changes on banks' capital adequacy by reclassifying tier 1 reserves to tier 2, without creating an extra buffer for credit risk.
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