Ownership MAS will require all the financial activities in each banking group to be grouped together, either under the bank or under a non-operating financial holding company (FHC). The non-financial activities must be segregated from the banking group and divested. They can be sold to third parties, or alternatively to the principal shareholders of the bank, so that the principal shareholders own them directly, and not through any of the entities in the financial arm of the group. MAS will regulate the bank or FHC, but it will not regulate the non-financial activities. Currently, all the local banks are listed, and so are many of the non-banks in the groups. The banks and non-banks already have separate sets of shareholders. In fact, the minority shareholders, i.e. the shareholders other than the principal shareholder, typically account for about 70% of the ownership of the bank. MAS will require this separation of ownership to be retained. The bank or FHC in the existing banking groups must continue to be listed on its own. For example,, it cannot be subsumed as a 100%-owned subsidiary of a listed top-level holding company, which owns both the bank as well as the nonfinancial entities. Having distinct groups of shareholders for the financial and non-financial activities will strengthen market discipline on the bank, and facilitate clearer accountability of its performance to minority shareholders. It will help to ensure that the separation of the financial and non-financial activities is substantive and not just pro-forma.
Money market risk premia rose sharply, from below 10 basis points to over 50 basis points, and even exceeding 100 basis points for some currencies. In this phase, we reacted flexibly to the volatile bank demand by providing generous amounts of liquidity at our repo auctions, and by increasing the frequency of finetuning operations. In October, there was a period of calm and risk premia retreated. In this phase, our patient – the market – was prescribed the usual remedies, although in higher doses and several times a day if necessary. The second wave arose out of concerns about refinancing shortages around the year-end, and reached its peak in December. To reduce uncertainty on the part of market participants, the Swiss National Bank increased its repo transactions at maturities of several weeks, or even several months, instead of the usual weekly maturity. These measures made it easier for banks to manage liquidity around the end of the year. During this second wave, European banks found it increasingly difficult to refinance in US dollars, and dollar rates were regularly higher in Europe than in the US. One reason for this was the structural dollar short position of the European banks and their concern that they would not have sufficient dollar liquidity at close of business as a result of poorly functioning money markets. For this reason, the Federal Reserve, ECB and SNB decided to take concerted action.