Singapore bank reforms prioritise local depositors

Author: Ashley Lee | Published: 18 Aug 2014
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Singapore’s bank reforms, while largely compliant with Basel III, focus on protecting its local depositor market.

Although the city-state is vying to become Asia’s financial centre, the Monetary Authority of Singapore (MAS) has put local depositors first by requiring some foreign banks to comply with domestic capital requirements under Basel III.

It follows other countries such as the US in requiring foreign banks with a significant presence to locally incorporate.

Yap Wai Ming, director at Stamford Law, stressed that the US and Singapore regimes are quite different. This is tailored for Singapore’s needs, but is consistent with all international requirements, he said.

Singapore’s proposed framework requires banks with over three percent of market share with more than 150,000 small depositors to locally incorporate. Unlike the US regulations they do not affect financial institutions focused on investment banking services.

Yap believes that local incorporation of foreign banks is necessary because these banks have an important place in the market. "They collect a fair amount of deposits from Singapore residents," he said.

They will be designated as domestic systemically important banks (D-Sibs). Other D-Sibs include Singaporean banks DBS, Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank.

KEY TAKEAWAYS

  • Singapore will require banks with over a three percent market share and 150,000 small depositors to locally incorporate;
  • Those banks will follow Singapore’s bank resolutions although there may be some flexibility on a case-by-case basis;
  • Singapore, like other Asian jurisdictions, is focused on crisis prevention rather than resolution.

Local regulations

Those domestic subsidiaries must follow local regulations, albeit with some flexibility.

For example, in its August consultation on liquidity coverage ratios (LCRs), MAS noted that maintaining liquid assets by foreign bank branches at each location was inefficient for group liquidity management. It said that it was prepared to vary the requirement under certain conditions and on a case-by-case basis.

Smaller domestic and foreign banks will also be permitted to continue using the previous liquidity framework.

Singapore has one of the region’s strongest banking systems. According to a Moody’s overview on global Basel III implementation, it will require financial institutions to hold a minimum capital adequacy ratio (CAR) plus countercyclical buffer of 12.5% - well above Basel III’s required 10.5%.

Only two other jurisdictions in Asia match or exceed that ratio – the Philippines also requires 12.5%, while Korea mandates 13%.

"We have a lot of proactive measures that the government puts in place to ensure that we have a very robust banking system," said Yap.

Regional prevention

This is a politically charged issue, and it’s not surprising that the MAS prioritises protecting its residents’ deposits. Its focus on banks’ deposit-taking business also means that much of the criticism directed at the US Dodd-Frank Act, which requires all banks with more than $50 billion of assets in the US to incorporate locally.

Questions remain about what would happen in a global crisis, especially how regulators would work together across borders in which most would face similar political pressure.


" They collect a fair amount of deposits from Singapore residents "




Singapore and other Asian jurisdictions are aiming to stop crises before they start. A July Moody’s compendium on bank resolution and bail-in regimes noted that Asia-Pacific regulators have focused on prevention rather than resolution. In particular Singapore has no record of bank failures in the past, the ratings agency said.

See also

Fitch: Most Asian governments to support failing banks

India bank resolution framework hits legislative hurdles

HK bank resolution consultation: the market reacts

 


 

 

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