BIS central bankers’ speeches  1  •  If the sector continues to grow twice as fast as the economy over the next five years – not easy but we aim to – financial services will make up 14% of the economy in 2020, compared to 11% in 2010. Now, the bad news. The financial sector is inherently vulnerable to risk and volatility. •  As crisis after crisis has shown, problems in the financial sector quickly become problems for the entire economy. •  The Global Financial Crisis imposed a tremendous cost with the global economy estimated to have lost 5 percentage points of growth between 2007 and 2009, not to mention the human dimension in jobs lost and companies closed. •  As an international financial centre – connected to the global network of financial flows and playing host to hundreds of foreign financial institutions – Singapore is particularly vulnerable to contagion and shocks from abroad. The global financial industry is facing unprecedented headwinds. •  We are looking at a prolonged period of low growth and low interest rates – a combination that spells reduced earnings and increased risks for most financial institutions. •  The regulatory and compliance burden has increased significantly, following wideranging regulatory reforms in the wake of the global financial crisis. •  The reforms were necessary to help make global finance safer; but their cumulative effects do pose a challenge for the profitability of financial institutions, especially banks. •  Unprofitable banks are not necessarily safe banks.
Finally, the financial industry in many parts of the world is facing a crisis of trust. •  Financial institutions have come under increasing public scrutiny over their business conduct. •  Globally, we have seen repeated cases of mis-selling financial products, manipulating benchmark rates, and using the financial system for illicit transactions. Singapore’s financial sector has to overcome these headwinds and manage these risks as it develops further. And it must do this while seizing on opportunities presented by a growing Asia and technological change. Let me touch on three attributes that our financial sector needs to maintain and strengthen in the years ahead: resilience, dynamism, and trust. A resilient financial centre I will start with resilience. •  We cannot insulate our financial sector from the stresses and turbulence in international financial markets. •  We must remain open but be able to absorb shocks from abroad and bounce back. High prudential standards have therefore been a hallmark of Singapore’s financial sector since the very beginning. •  In recent years, we have further strengthened the resilience of the system through higher capital requirements and enhanced liquidity rules. Singapore banks operate well above the regulatory capital minimums. 2  BIS central bankers’ speeches  •  The Basel Committee prescribes a minimum Tier 1 capital adequacy ratio of 6%;  •  MAS has set a regulatory minimum of 8%;  •  The three local banking groups have Tier 1 ratios in excess of 13%.