Framework for systemically important banks planned

[SINGAPORE] Singapore is creating a framework that will identify and regulate certain banks here as "domestic systemically important banks", taking a leaf from global regulators who have turned a keen focus on large banks with complex operations.

While full details have not been released, one immediate implication is that foreign banks with a large retail presence here will have to incorporate their retail operations. Banks including HSBC - said to be already looking at local incorporation - and Maybank should come under the spotlight.

The decision to create a framework for systemically important banks was announced last night by deputy chairman of the Monetary Authority of Singapore (MAS) Lim Hng Kiang, who is also the Minister for Trade and Industry.

Speaking at the 41st annual dinner of the Association of Banks in Singapore (ABS), Mr Lim said creating this "explicit framework" will allow MAS to set targeted and appropriate policy measures for such banks.

He said MAS will build this framework by "drawing on the crisis experiences in other countries and international discussions on systemically important banks".

"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," Mr Lim said.

Notably, this follows the move by the Financial Stability Board in identifying a group of global banks as global systemically important banks. The Basel committee has proposed setting higher loss absorbency requirements for such banks.

These banks include several well-known Western lenders that also have a presence in Singapore, such as HSBC, JPMorgan, Barclays, BNP Paribas, Citigroup and Deutsche Bank.

Some Asian lenders that are deemed systemically important on a global basis include Bank of China and Sumitomo Mitsui.

Mr Lim said that as one example, MAS proposes to regard a bank as having a significant retail presence if its market share of resident non-bank deposits is at least 3 per cent, and if it has 150,000 or more depositors with accounts of up to $250,000.

Banks that have to locally incorporate their retail operations will need to hold two percentage points of capital above the minimum set by Basel III, which is the standard upheld for the three Singapore banks.

In 2012, Standard Chartered Bank incorporated its Singapore consumer banking business, a decision that cost the bank some US$25 million and meant a commitment to higher regulatory standards here. Citigroup did so in 2005.

Maybank and HSBC have a substantial retail presence here, and hold a Qualifying Full Bank (QFB) licence, which allows for as many as 50 branches and standalone ATMs.

A foreign bank that is deemed a systemically important bank in Singapore will also have to meet Singapore's prescribed liquidity coverage ratio (LCR). This ratio - which is part of Basel III regulations - seeks to ensure banks hold enough high-quality liquid assets to match their total net cash outflows over a 30-day period.

These foreign banks must meet a Singapore-dollar LCR of 100 per cent, and an all-currency LCR of 50 per cent.

Singapore banks will likewise need a Singapore-dollar LCR of 100 per cent by January 2015. They also need an all-currency LCR of 60 per cent by then; this will be raised by 10 percentage points each year until it hits 100 per cent by 2019.

Mr Lim said the lower all-currency requirement of 50 per cent for foreign banks that are systemically important "recognises that the head offices of many foreign banks are likely to be subject to LCR requirements as well".

The other foreign banks can stick with Singapore's version of liquidity coverage requirement, the minimum liquid assets (MLA).

Those banks will have to meet both the all-currency MLA and Singapore-dollar MLA at 16 per cent of their liabilities' base.

For all foreign banks, the new regulatory requirements will apply from January 2016, a year after the deadline for Singapore banks.

OCBC's head of corporate treasury, William Goh, said the bank is compliant with MAS's liquidity framework, and constantly manages its liquidity risks.

A DBS spokesman said the bank is comfortable with the liquidity requirements as they are in line with Basel III rules.

In his opening speech, Samuel Tsien, chairman of the ABS, noted the cost of "increasingly complex rules and regulations".

He cited an informal poll of six large retail banks in Singapore that showed the cost of putting in systems to meet the requirements of the US Foreign Account Tax Compliance Act came close to $30 million.