Singapore unveils new rules to strengthen banking system

Foreign banks with a significant retail presence in Singapore will have to incorporate locally and be subject to tougher regulations, as part of measures to make the local banking system more resilient. This was announced by Minister of Trade and Industry Lim Hng Kiang on Tuesday evening (June 24) 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 systematically important banks," said Mr Lim, who is also deputy chairman of the Monetary Authority of Singapore (MAS).

"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 locally incorporated, for example Citibank and Standard Chartered. Most, however, operate branches, giving MAS less control of their business.

MAS will issue a consultation paper on its proposals shortly, the minister added.

Mr Lim on Tuesday 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 which applies to Singapore dollar qualifying liabilities.

"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.