The US sub-prime experience exemplifies the need for the Hong Kong Mortgage Corporation to sustain its clear missions of maintaining financial stability, and providing liquidity to the banking system and a contingency backstop.

This is the message from Monetary Authority Chief Executive Joseph Yam in his weekly Viewpoint column published on the authority's website today.

He said the corporation's role, operations and governance are very different to federal mortgage corporations in the US like Fannie Mae and Freddie Mac. The corporation's primary mission is to promote financial stability by providing a channel to help banks address their liquidity needs and the credit risk arising from their mortgage portfolios. But Fannie Mae and Freddie Mac promote home ownership through participation in the mortgage market as mortgage lenders.

While the two US bodies originate mortgages in competition with banks, the Mortgage Corporation does not directly originate mortgages but buys them under prudent criteria from banks that want to obtain liquidity or reduce the concentration of their exposure to mortgages.

Being a public-sector organisation while operating on a commercial basis, the corporation is not under the same commercial pressures as Fannie Mae and Freddie Mac. Its governance arrangements have a strong bias towards financial stability over profitability.

Given its ownership by the Exchange Fund, the corporation's board is effectively its regulator. It chairman, the Financial Secretary, is also the fund's controller and has the overall responsibility for financial stability in Hong Kong.

"The corporation will continue its business-diversification strategy and maintain a viable scale of operations to discharge its functions more effectively," Mr Yam said.