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Singapore unveils new rules to strengthen banking system

The Monetary Authority of Singapore announces new liquidity requirements as part of measures to make the local banking system more resilient. Foreign banks with significant retail presence in Singapore will have to incorporate locally.

SINGAPORE: Singapore on Tuesday (June 24) announced new liquidity requirements as part of measures to make the local banking system more resilient.

Minister of Trade and Industry Lim Hng Kiang also said the Monetary Authority of Singapore (MAS) will issue a consultation paper on how it plans to regulate foreign banks considered to have a significant retail presence in Singapore. Mr Lim, who is also deputy chairman of MAS, made the announcements at an Association of Banks in Singapore dinner.

Under the proposed changes, foreign banks with a market share of over 3 per cent of resident non-bank deposits and more than 150,000 small depositors will be asked to incorporate their retail operations locally if they have not already done so.

Such banks - called domestic systematically important banks or D-SIBs - will have to hold 2 percentage points of capital above the international Basel III regulatory minimum. They will also be required to have well-developed recovery and resolution plans.

"An explicit D-SIB framework will allow MAS to set targeted and appropriate policy measures for systemically important banks," said Mr Lim.

"Such forward-planning can reduce the risks posed by a D-SIB to the stability of the financial system and allow an orderly resolution of a distressed institution," he added.

Some foreign banks in Singapore are already locally incorporated, for example, Citibank and Standard Chartered. Most, however, operate branches, giving MAS less control of their business.

When a bank incorporates or sets up a wholly owned subsidiary in Singapore, it commits capital to support its local business that cannot be used by other parts of the banking group.

A branch of a foreign bank in Singapore, on the other hand, is an extension of a larger entity that is based in a different country. MAS will issue a consultation paper on its proposals shortly, the minister said.

Mr Lim also unveiled MAS' new liquidity framework to ensure that banks hold sufficient high-quality and liquid assets to match their total net cash outflows over a 30-day period. The new liquidity framework also extends to non-Singapore dollar liabilities, to better reflect the business operations of banks that are based here.

Banks that are not assessed to be D-SIBs may elect to comply with the new liquidity coverage ratio or choose to remain under the current system.

"While MAS recognises that there may be cost efficiencies in managing liquidity centrally at the group level, there can be significant obstacles to the free movement of liquidity across borders during a stressed scenario," he said.

"Thus, foreign banks operating in Singapore will be required to maintain some liquid assets in Singapore to support their local liquidity needs."

DBS, OCBC and UOB will have to meet the new liquidity requirements by January next year, while rules relating to foreign banks will take effect in January 2016. 

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