For a small country like Singapore with limited human capital, the single agency model allows MAS to more effectively utilise available expertise and exploit synergies to achieve our objectives for the financial sector and wider economy. BIS central bankers’ speeches  1  And like the blending of British and tropical themes in the bungalows, bringing together central banking, integrated supervision, and developmental functions serves important practical purposes. First, being an integrated supervisor gives us better insights into the full range of activities that a financial institution engages in and hence facilitates more holistic financial supervision. Integrated supervision is consistent with the broad range of services that financial institutions provide as well as the blurring of distinctions across financial products that we see today. •  Banks offer their clients a suite of financial services, including investment and insurance products. •  Insurance companies offer financial planning solutions that incorporate elements of savings deposits and investments, in addition to protection. There are synergies across prudential regulation and market conduct regulation. Market conduct issues provide useful perspectives on the prudential safety and soundness of individual firms. How financial institutions treat their customers speaks a great deal about their corporate values, ethical standards, and quality of risk management and internal controls. Second, being a central bank and a financial regulator allows us to harness synergies between macroeconomic analysis and financial stability oversight.
The relevant risk for the SOMA portfolio instead has to do with movements in interest rates at different maturities. BIS central bankers’ speeches  5  controls. The interest paid on reserves can be thought of as the “funding cost” of the portfolio. Today, because short-term interest rates are low relative to longer-term interest rates, this mismatch produces a very elevated stream of net income. In particular, the SOMA portfolio has a weighted average coupon yield of about 3.5 percent, which, if applied to a $ trillion portfolio, produces about $ billion of income at an annualized rate. 14 In contrast, the annualized funding cost of the portfolio at this time is only around $ billion. This cost is relatively low because of the near-zero level of the interest rate paid on reserves. In addition, the private sector holds nearly $ trillion of currency, which are liabilities of the Federal Reserve that bear no interest. 15 Thus, the SOMA portfolio should produce a considerable amount of net income over the near term. 16 Beyond the near term, though, the income that will be produced by the SOMA portfolio is uncertain. If short-term interest rates were to rise, the funding cost of the portfolio would increase relative to the fairly steady yield earned on the assets held, reducing the amount of net income from the portfolio. In addition, if longer-term yields were to shift higher, the Federal Reserve could realize capital losses if it were to begin selling assets.