Latest development: Clement Cheung, John Tsang and Professor KC Chan brief reporters on the impact of Lehman Brothers' bankruptcy filing and AIG's capital problems on Hong Kong's markets.

Insurance subsidiaries of AIG in Hong Kong must seek prior approval from the Insurance Authority on all transactions involving transfer of assets or funds to other related entities within the group, Financial Secretary John Tsang says.

He today said the authority has exercised its statutory powers to safeguard assets of AIG's insurance subsidiaries in Hong Kong.

The Federal Reserve Board has authorised the Federal Reserve Bank of New York to provide a loan facility of up to US$85 billion to AIG in return for a 79.9% stake in the company.

"This measure will go some way towards relieving short-term funding pressure faced by AIG and is a gesture of support by the US Government to its impending corporate restructuring exercise," Mr Tsang said.

The authority will maintain close dialogue with its counterparts in the US as details of the company's restructuring plan unfold. It will monitor the position of AIG's insurance subsidiaries in Hong Kong.

"The Insurance Authority will uphold the regulatory actions already in force and impose new regulatory actions if justifiable by prevailing circumstances."

Liquidators appointed

On the Lehman Brothers situation, Mr Tsang said provisional liquidators have been appointed for two of their units in Hong Kong - Lehman Brothers Securities Asia and Lehman Brothers Futures Asia.

Secretary for Financial Services & the Treasury Professor KC Chan said the Securities & Futures Commission will work with Hong Kong Exchanges & Clearing to ensure an orderly close out of clients' outstanding positions.

Regarding Lehman Brothers' mini-bonds and structured products, the commission has contacted the concerned trustees to ensure they carry out their responsibilities.

Market situation

The Hang Seng Index fell 663 points to close at 17,637 today with a total turnover of $76 billion. The operation of the foreign exchange market remains normal and there is no sign of any large-scale capital outflow from Hong Kong.

"The Hong Kong dollar exchange rate and interbank interest rate remain stable. If necessary, liquidity will be provided by the Monetary Authority to ensure the orderly operation of the market," Mr Tsang said.