Singapore unveils new liquidity regulatory framework for banks

Singapore unveils new liquidity regulatory framework for banks

SINGAPORE, June 25 (Xinhua) -- Singapore's Trade and Industry Minister Lim Hng Kiang on Tuesday unveiled a new framework for banks to strengthen their liquidity management and new regulatory rules for banks that are considered "domestically important."

Speaking at a dinner organized by the Association of Banks in Singapore, Lim said that strong capital positions alone are no guarantee against financial instability, citing the near melt-down of financial systems in some advanced economies a few years ago.

"A comprehensive regulatory approach to banking resilience must therefore include frameworks to address liquidity risk and the challenges posed by systemically important banks," he said.

Lim said that Singapore regulators plan to follow principles proposed by the Basel Committee for national regulators to finalize its own framework for domestic systemically important banks (D-SIBs), which will be clearly defined.

For example, a bank will be regarded as having a significant retail presence if its market share of resident non-bank deposits is three percent or more, and if it has 150,000 or more depositors with accounts less than or equal to 250,000 Singapore dollars (200, 000 U.S. dollars). Such banks will be required to locally incorporate their retail operations.

The locally-incorporated D-SIBs will have to hold two percentage points of capital above the international Basel III regulatory minimum.

"An explicit D-SIB framework will allow MAS (the Monetary Authority of Singapore) to set targeted and appropriate policy measures for systemically important banks," Lim said.

Lim also highlighted liquidity management as a key aspect of the new regulatory framework for the system.

The new approach of the Monetary Authority, based on the new international regulatory standard of liquidity coverage ratio (LCR) under the Basel III reforms, will be aimed to "ensure that banks hold sufficient high-quality and liquid assets to match their total net cash outflows over a 30-day period," he said.

Under the new framework, foreign banks in Singapore will continue to be subject to the liquidity requirements of the Monetary Authority. The new framework will apply to all currencies, compared with the previous framework that covers mainly the Singapore dollar liabilities of banks.

The three home-grown banking groups, such as DBS, OCBC and UOB, will be required to meet a Singapore-dollar LCR of 100 percent by January 2015; and an all-currency LCR of 60 percent by January 2015, increasing by 10 percent each year to 100 percent by 2019.

This is consistent with the Basel III implementation timeline for all internationally active banks, Lim said.

All banks assessed by the Monetary Authority to be domestic systematically important banks will have to meet liquidity coverage ratio requirements. Foreign banks on the LCR framework will be required to meet a Singapore dollar LCR of 100 percent and an all-currency LCR of 50 percent starting January 2016.

Banks that are not assessed to be domestic systematically important banks may elect to comply with the LCR or choose to remain under the minimum liquid assets (MLA) requirement of the Monetary Authority.

Under the MLA framework, banks must maintain eligible assets to cover a specified proportion of their qualifying liabilities. The objective is to ensure that banks have sufficient liquid assets to meet their estimated short-term cash outflows.

The Monetary Authority last undertook a major revision of the MLA requirement in 2008 to make it more risk sensitive and bank- specific. In 2013, the central bank issued a set of risk management principles to provide further guidance to banks on sound liquidity risk management practices.