Hedging risk: MAS to pick out ‘systemically important’ banks

Find out the 4 factors.

Locally-incoporated banks, including subsidiaries of foreign banks, and foreign bank branches under the D-SIB framework, will be assessed by MAS to find out the risk that they might pose to the city’s financial sector.

MAS lists 4 factors in assessing SIBs - size, interconnectedness, substitutability, and complexity.

Systemically important financial institutions (FIs) have negative externalities as observed in massive public bail-outs during the Global Financial Crisis in 2008, pushing the Basel Committee on Banking Supervision to roll out a framework for assessing global systemically important banks.

Singapore and other countries are expected to develop their own D-SIB frameworks to identify and adopt appropriate measures to address systemically important banks in their domestic banking systems by 1 Jan 2016.

MAS proposes to publish the initial list of D-SIBs by 1Q15.

Here’s more:

MAS will conduct a periodic review of the D-SIB framework to ensure that the framework takes into account developments in the banking sector and assessment methodologies. To this end, MAS proposes that the D-SIB framework, including the methodology and indicators, be reviewed every three years, and that MAS announces
the outcome of the review upon its completion.

A fixed review period will provide clarity and certainty on the frequency of reviews and provide assurance that the framework is kept up-to-date. A three-year period will ensure ongoing suitability and effectiveness of the framework, and yet provide MAS with sufficient time to monitor that any changes are relevant.

This three-year review period is consistent with the BCBS G-SIB framework.