Banks also need to prepare themselves for new business opportunities, especially e-banking. MAS will track the progress of the banking liberalisation programme. We will review the status next year, and decide on further steps to open up the sector. Local banks will come under increasing pressure, not from MAS, but from the rapid changes in technology and the market. The banks will have to continually reassess their competitive positions and strategies, and adapt themselves as conditions change. MAS will continue discussing with the local banks ways to increase bank transparency further, for example by disclosing more information on remuneration and incentive structures, related party transactions, the banks’ risk profiles and their risk management processes. Greater disclosure will reinforce corporate governance. Singapore banks are ahead of most of their Asian counterparts in these two areas, but they are still some way from the best international practices. We are reviewing the current Minimum Liquid Assets and Minimum Cash Balance requirements imposed on banks, and the capital requirements for financial holding companies and banking groups. This is part of the shift from regulation to supervision, replacing “one-size-fits-all” requirements with a more “tailored” approach. We should not unnecessarily disadvantage Singapore banks vis-à-vis foreign competitors. We are reviewing bank involvement in non-financial activities, and the cross-holding structures typical of Singapore banking groups. An appropriate separation between financial and non-financial activities is important to minimise the risk of contagion and ensure that management is focussed on the core business of banking.
Beyond the theoretical considerations, it is important that financial regulation, in all its forms, should contribute to maintaining financial system diversity. Thus, attempting to measure all assets and liabilities at fair value has some drawbacks – and even entails risks – that need to be taken into account if lessons are to be drawn from the financial crisis for accounting rules. To conclude, I would like to stress an important point regarding the new financial regulatory framework. It would be unrealistic to believe that financial regulation is the answer, and, above all, that it is capable of protecting us from the risk of financial instability. Indeed, the crisis can largely be attributed to financial institutions’ inadequate risk management, which stems from an irrational trust in quantitative tools. Financial regulation should be an incentive for financial system participants to develop a sound and efficient management framework. It is no substitute. 2  BIS Review 161/2008