The Monetary Authority of Singapore's (MAS) consultation paper "Proposed
Framework for Systemically Important Banks in Singapore", issued on June
2014, sets out the methodology MAS will use in assessing whether these
three types of financial institutions are domestic systemically important banks
locally incorporated bank groups;
locally incorporated subsidiaries of foreign banks and sister branches;
foreign bank branches.
The paper also describes the supervision and policy measures that MAS will
subject these three D-SIB types to, including capital buffers for higher loss
absorbency (HLA) and liquidity coverage ratios (LCR). A foreign bank branch
assessed to be a D-SIB will be required to incorporate in Singapore.
MAS's proposals are made in response to the Basel Committee of Banking
Supervision’s consultative document: "A framework for dealing with domestic
systemically important banks" (2012) which, in turn, complements the
assessment methodology and HLA principles issued for global systemically
important banks (G-SIBs) in 2011. The consultation period will close on 25
Although MAS adopts the same four indicators used by the Basel Committee,
MAS has adapted the measures to be used for each indicator to better reflect
Singapore’s financial system and economy:
1. Size: Size is the key measure of systemic importance. The larger the
bank and its share of domestic activity, the higher the likelihood that
its failure will have a negative impact. Since the Basel III leverage
ratio used for G-SIBs will be relevant only to reporting locallyincorporated
banks, MAS has proposed that the measure of size will
be based on either "share of banking system assets" or "share of total
non-bank deposits", To determine retail presence, MAS will look at
"share of resident non-bank deposits" or "number of depositors with
S$250,000 or less in their accounts";
2. Interconnectedness: Essentially a bank with numerous linkages
within the financial system may be considered systemically important.
To gauge a D-SIB's contagion potential, MAS will base its measure
on a "network analysis of the interbank system". Large interbank
borrowers or lenders which may escape identification by network
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2 Consultation Paper on Proposed Framework for Systemically Important Banks in Singapore
analysis will be measured on their "share of amount due to banks" and "share of amount due from banks";
3. Substitutability: The less the bank's services may be substituted in a timely manner, the higher its systemic importance. Apart from the G-SIB measure of "assets under custody", MAS will not use "payments activity" and "underwritten transactions in debt and equity markets" as measures. Instead, MAS has identified those activities and functions which would be hard to substitute in the Singapore context and will use "share of MAS Electronic Payment System (MEPS+) payments"; "share of values of underwritten transactions in debt and equity markets"; and "whether a bank is a USD cheque settlement bank" as measures; and
4. Complexity: A bank's business structure and operational complexity could amplify its systemic importance. Again, departing from G-SIB measures of "notional amount of over-the-counter (OTC) derivatives", "level 3 assets", and "trading and available-for-sale securities", MAS will instead combine quantitative and qualitative measures such as "share of gross OTC derivatives outstanding" as well as the bank's business, legal and operational structure, such as "role of the bank in the whole bank group and domestic financial system"; "number of jurisdictions in which the bank operates"; "number of business units through which the bank operates"; and "whether the bank has centralised or decentralised capital and liquidity management, and if centralised, the location of these key functions". MAS will not assess a bank as a D-SIB based on complexity alone, it must also be significant in either size, interconnectedness or substitutability.
Although the Basel Committee's consultative document does not give an implementation timeline, MAS proposes to publish the initial list of D-SIBs, assessed on 2013 data, by the first quarter of 2015 to provide banks sufficient time to comply with policy measures taking effect from 1 January 2016. Foreign branches required to be incorporated locally will be given an adequate transition period.
Subsequently, MAS will conduct annual assessments and publish the list of D-SIBs after each assessment exercise. MAS will observe a bank for two years before confirming any subsequent change in its D-SIB status to provide greater certainty of a bank's status before subjecting it to policy measures. However, MAS retains the discretion to adjust a bank's D-SIB status where the change in a bank's systemic importance is likely to be permanent, e.g. inorganic growth or restructuring of operations.
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