While MAS will intensify its supervision, the first responsibility for soundness and prudence lies with the Board and management of the bank itself. Bank management must ensure that they have in place robust, group-wide risk management systems adequate to the new scale and risk profile of the combined entity. This again underlines the importance of top quality institutionalised, professional management for the banks. Competition We should not allow an enlarged bank, or a few banks in a consolidated banking industry, to use their market power to engage in monopolistic or other anti-competitive practices that raise prices, diminish consumer choice, or erect barriers to entry by other players. MAS does not think this will happen. It is unlikely that the largest bank in the system will have an over-dominant share. For example, if OUB merges with one of the larger banks, their combined market share of non-bank deposits will be at most about 30%. This will still be significantly less than the share of the largest banks in other small countries, like the Netherlands and Hong Kong. BIS Review 61/2001  3  Secondly, the competition will not just be among the remaining local players. The banking liberalisation programme will continue to introduce greater competition from foreign banks, in the range and pricing of products they offer and quality of service. Thirdly, the Government will be vigilant against any abuse of market power. The Competition Act that MTI is now considering will help us to do that.
Small depositors Given the prospect of mergers and rationalisations, it is natural that many bank customers are apprehensive and worried about how they will be affected. A merger will result in rationalisation of branch and ATM networks, which will inconvenience some customers. But overall, customers should have access to more branches and ATMs after the merger, even though not every existing branch and ATM can necessarily be retained. And because a larger merged bank can operate more efficiently and realise revenue synergies, it should be able to provide better service and greater choice to customers. Of course the bank will have to handle the implementation carefully and sensitively, giving customers adequate notice of changes and helping them to adjust. It is in the bank’s own interest to do this, and I am sure they will make every effort to do it well. Unfortunately this does not mean that as a result of a merger, every bank service will become cheaper or free. This is not possible, not because of mergers, but because of competition. Competition will force banks to watch their bottom lines more closely, and to make each service and product break even. It will become harder for banks to continue cross-subsidising services that they used to provide for free or below cost. That was a luxury that they could only afford in a protected and languid market where profits came easily, a state of affairs which was unsustainable in the long run.