Singapore sets tougher liquidity rules for banks

Reading Time: 3 minutes

A customer walks towards a branch of the DBS bank in SingaporeSingapore on June 24 unveiled tougher rules on minimum levels of liquid capital that banks must hold as part of global regulatory efforts to inoculate banks against sudden financial stress.

All three local banks –  DBS Group Holdings, Oversea-Chinese Banking Corp. and United Overseas Bank – as well as foreign lenders with major presence in the city-state must prepare to meet a new requirement, known as the “liquidity coverage ratio,” Trade Minister Lim Hng Kiang told an annual gathering of bankers in Singapore.

The liquidity coverage ratio was among rules proposed by the Basel Committee on Banking Supervision – a group of the world’s top regulators and central bankers – as part of its landmark 2010 response to the global financial crisis, also known as the Basel III accord. It requires lenders to hold enough “high quality” liquid assets, such as cash and government bonds, to be able to withstand an intense 30-day crisis similar to what occurred in fall 2008.

The new liquidity rule “better aligns regulatory requirements with the actual liquidity risks that banks may face,” and is “more risk-sensitive” than Singapore’s current minimum requirement for liquid assets, which is based on lenders’ liabilities at a single point in time, said Lim, who is also deputy chairman of the Monetary Authority of Singapore, the city-state’s central bank and financial regulator.

Starting January 2015, DBS, OCBC and UOB must meet the new liquidity rule in full for Singapore-dollar assets and at a ratio of 60 per cent for all-currency assets, said Lim.

All three local banks must also progressively meet tougher liquidity coverage ratios for all-currency assets, to be raised by 10 percentage points yearly until 2019, when the ratio would reach 100 per cent, the minister added.

As for foreign banks deemed to have a major local presence, they must meet the new liquidity rule in full for their Singapore-dollar assets and at a ratio of 50 per cent for all-currency assets starting January 2016.

Foreign banks not deemed as systemically important to the local financial system can choose to adhere to the new liquidity rule, or stick with the existing minimum liquid assets requirement, Lim said.

The minister didn’t specify the types of liquid assets that Singapore regulators would deem as “high quality,” but said the MAS would release details later. The Basel Committee in 2010 set a narrow definition that included government bonds, cash parked at central banks and little else, but later relaxed the requirement after the banking industry pushed for a more diverse array of assets to count.

The Basel III accord, known for the Swiss city in which it has historically been negotiated, required banks to greatly thicken their capital cushions and come up with trillions of dollars of liquidity. The banking industry, however, campaigned for the new rules to be relaxed, saying they were overkill and would prompt dramatic reductions in lending.

In Singapore’s case, the MAS consulted with the banking industry and the general public last year before deciding how it would implement the liquidity coverage ratio, Lim said.

Aside from new liquidity rules, the MAS plans to propose a new framework for regulating local and foreign lenders deemed to be “systemically important” for the domestic banking system, according to the minister.

Under the proposed rules, a “domestic systemically important bank” with significant retail presence would need to locally incorporate its retail operations and hold two percentage points of capital above the minimum threshold set under Basel III rules, among other requirements, Lim added.

Do you like this post?
  • Fascinated
  • Happy
  • Sad
  • Angry
  • Bored
  • Afraid

Reading Time: 3 minutes

Singapore on June 24 unveiled tougher rules on minimum levels of liquid capital that banks must hold as part of global regulatory efforts to inoculate banks against sudden financial stress.

Reading Time: 3 minutes

A customer walks towards a branch of the DBS bank in SingaporeSingapore on June 24 unveiled tougher rules on minimum levels of liquid capital that banks must hold as part of global regulatory efforts to inoculate banks against sudden financial stress.

All three local banks –  DBS Group Holdings, Oversea-Chinese Banking Corp. and United Overseas Bank – as well as foreign lenders with major presence in the city-state must prepare to meet a new requirement, known as the “liquidity coverage ratio,” Trade Minister Lim Hng Kiang told an annual gathering of bankers in Singapore.

The liquidity coverage ratio was among rules proposed by the Basel Committee on Banking Supervision – a group of the world’s top regulators and central bankers – as part of its landmark 2010 response to the global financial crisis, also known as the Basel III accord. It requires lenders to hold enough “high quality” liquid assets, such as cash and government bonds, to be able to withstand an intense 30-day crisis similar to what occurred in fall 2008.

The new liquidity rule “better aligns regulatory requirements with the actual liquidity risks that banks may face,” and is “more risk-sensitive” than Singapore’s current minimum requirement for liquid assets, which is based on lenders’ liabilities at a single point in time, said Lim, who is also deputy chairman of the Monetary Authority of Singapore, the city-state’s central bank and financial regulator.

Starting January 2015, DBS, OCBC and UOB must meet the new liquidity rule in full for Singapore-dollar assets and at a ratio of 60 per cent for all-currency assets, said Lim.

All three local banks must also progressively meet tougher liquidity coverage ratios for all-currency assets, to be raised by 10 percentage points yearly until 2019, when the ratio would reach 100 per cent, the minister added.

As for foreign banks deemed to have a major local presence, they must meet the new liquidity rule in full for their Singapore-dollar assets and at a ratio of 50 per cent for all-currency assets starting January 2016.

Foreign banks not deemed as systemically important to the local financial system can choose to adhere to the new liquidity rule, or stick with the existing minimum liquid assets requirement, Lim said.

The minister didn’t specify the types of liquid assets that Singapore regulators would deem as “high quality,” but said the MAS would release details later. The Basel Committee in 2010 set a narrow definition that included government bonds, cash parked at central banks and little else, but later relaxed the requirement after the banking industry pushed for a more diverse array of assets to count.

The Basel III accord, known for the Swiss city in which it has historically been negotiated, required banks to greatly thicken their capital cushions and come up with trillions of dollars of liquidity. The banking industry, however, campaigned for the new rules to be relaxed, saying they were overkill and would prompt dramatic reductions in lending.

In Singapore’s case, the MAS consulted with the banking industry and the general public last year before deciding how it would implement the liquidity coverage ratio, Lim said.

Aside from new liquidity rules, the MAS plans to propose a new framework for regulating local and foreign lenders deemed to be “systemically important” for the domestic banking system, according to the minister.

Under the proposed rules, a “domestic systemically important bank” with significant retail presence would need to locally incorporate its retail operations and hold two percentage points of capital above the minimum threshold set under Basel III rules, among other requirements, Lim added.

Do you like this post?
  • Fascinated
  • Happy
  • Sad
  • Angry
  • Bored
  • Afraid