At the individual depositor level, additional safeguards such as a deposit insurance scheme (which we already have in place in Singapore) and local incorporation will provide better protection for depositors from problems emanating from other parts of the banking group. Local incorporation can also bring benefits to a bank, especially where it has a significant retail presence. Liquidity rules under Basel III will require long-term stable sources of funding to comprise a larger share of a bank’s total funding. Competition for deposits is expected to intensify, and banks that can attract stable funding will gain an advantage. Local incorporation can therefore demonstrate a bank’s long-term commitment to depositors and other stakeholders in a world of possibly permanent heightened volatility and uncertainty. Beyond local incorporation, encouraging strong international banks to sink deeper roots in a domestic economy will allow them to play a greater role in contributing to financial resilience. Let me elaborate on this important objective of encouraging strong international banks to sink deeper roots in a national economy. One of the key features of our banking liberalisation has been the Qualifying Full Bank (“QFB”) privileges that have been granted to foreign banks. The number of QFBs has increased from the initial four in 1999 to six in 2001 and eight today. QFBs have also been allowed more places of business from 10 in 1999 to 25 today. MAS will continue to liberalise the domestic banking sector in a progressive and calibrated manner.
The Basel Committee has proposed several reforms to minimise the risk of failure of global systemically important banks (“G-SIBs”), and to minimise the impact if any of them should fail. It is also recognised that some banks are systemically important within their own domestic markets even if they are not internationally active to the same extent as the G-SIBs. The failure of these domestic systemically important banks (“D-SIBs”) can have a major impact on an economy, and indeed unpredictable consequences for a broader region. Bankia for example, is not a G-SIB. The Basel Committee has recommended higher loss absorbency requirements for G-SIBs, and is studying an appropriate regulatory framework for D-SIBs. MAS is very much part of that discussion. However, in order to keep to the spirit and intent of the new measures, sensible judgement will be the key to implementing the new rules. Sensible implementation requires national regulators to take into account the impact of their actions on economic growth and international finance even as they exercise national discretion to address prudential issues in their banking system. There are two risks of a broader nature that we have to keep clearly in focus in international discussions, so that what we do now to strengthen our respective national systems does not lead to new problems and vulnerabilities internationally, further down the road. First, we have to ensure that the cumulation of enhanced capital and other requirements on global banks do not impede them from playing their critical roles in global finance.