Chinese Banks Plan for Possible US Sanctions – Report

Source: Regulation Asia Editors, Regulation Asia 2020-07-10

Bank of China and ICBC are reportedly preparing for worst-case possibilities that they could be cut off from US dollars or lose access to US dollar settlements.

Chinese state-owned banks are preparing contingency plans in anticipation of US sanctions legislation that could penalise them for serving officials who implemented the new national security law in Hong Kong, Reuters reports.

The national security legislation promulgated in Hong Kong from the start of July, criminalising acts of secession, subversion, terrorism and collusion with foreign and external forces to jeopardise national security.

US lawmakers have passed a bill – the Hong Kong Autonomy Act – that seeks to mandate sanctions against individuals and entities that have materially contributed to the erosion of Hong Kong’s autonomy, as well as any foreign financial institution that knowingly conducts ‘significant transactions’ with such persons. The bill has not yet been signed into law by President Donald Trump.

“There are sanctions in this bill which could be interpreted to prevent a bank from clearing some dollar transactions via US institutions, but unlike other congressional sanctions bills there are no specific provisions mandating it,” said Nick Turner at Steptoe & Johnson in Hong Kong, adding that it remains to be

According to Reuters, the worst-case scenarios under consideration at Bank of China and ICBC are the possibility of being cut off from US dollars or losing access to US dollar settlements. Bank of China is also preparing for the possibility that a loss of access to US dollars could prompt a run on its branches in Hong Kong.

A milder scenario being considered by the Agricultural Bank of China involves finding ways to address the problem of clients being blacklisted by the US, especially those who might face a sudden loss of liquidity.

State-run leasing firms, which typically rely on US dollar funding for purchases of aircraft, machinery and facilities, are also said to be also making contingency plans.

state-owned banks

The national security legislation

Chinese Banks Plan for Possible US Sanctions – Report

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