Tougher regulation in store for Singapore banks: MAS

Both local and foreign banks are in the spotlight.

A new regulatory framework is in the pipeline for large domestic banks, Minister for Trade and Industry and MAS Deputy Chairman Lim Hng Kiang announced in a speech yesterday.

According to Lim, the MAS is developing a new regulatory system for domestic systemically important banks or D-SIBs, which aims to make local banking more resilient against economic upheavals. 

“An explicit D-SIB framework will allow MAS to set targeted and appropriate policy measures for systemically important banks. For example, D-SIB bank branches with a significant retail presence will be required to locally incorporate their retail operations. MAS proposes to regard a bank as having a significant retail presence if its market share of resident non-bank deposits is 3% or more, and if it has 150,000 or more depositors with accounts less than or equal to S$250,000,” said Lim.

The MAS’ efforts are in line with proposals from the Basel Committee for stricter regulations for global systemically important banks, or “G-SIBs”.

Here’s more from Lim’s speech: 

Large global banks are often systemically important, yet their size, complexity, and cross-border nature, make them particularly challenging to regulate and supervise. The failure of these banks can have global repercussions.

The Financial Stability Board (FSB) has identified a group of such banks – referred to as global systemically important banks, or “G-SIBs” – and established a range of measures to enable more effective regulation and supervision of these G-SIBs.

Regulators have established supervisory colleges and crisis management groups (CMGs) to improve their prudential oversight of internationally active banks, many of which have systemic significance in host jurisdictions.

MAS is a member of the supervisory colleges of many international and regional banks and also hosts supervisory college meetings for the three local banking groups which have extensive operations in the region.

In addition, MAS participates in the cross border CMG meetings of six global systemically important banks. These meetings provide a platform for home and host supervisors to exchange information and coordinate cross-border supervision.

At the international level, the Basel Committee has proposed setting higher loss absorbency (HLA) requirements for G-SIBs. The HLA aims to increase the capital buffers that G-SIBs hold, so as to reduce their probability of failure by increasing their capital buffers.

The Basel Committee has also followed up with a set of principles for national regulators to develop their own frameworks for domestic systemically important banks, or “D-SIBs”.

As part of its on-going prudential oversight of the banking sector, MAS performs regular risk and impact assessments of each bank in Singapore to calibrate the appropriate level of supervisory attention.

Drawing on the crisis experiences in other countries and international discussions on systemically important banks, MAS will build on its existing supervisory diagnostic tool to formalise an explicit D-SIB framework.

To assess a bank’s systemic importance, MAS will use factors such as its size, interconnectedness to the financial system, substitutability of the institution, and its overall complexity. Further details will be set out in MAS’ consultation paper.