Local depositors would be exposed to possible contagion or a crisis of confidence arising from problems in the bank’s home market, or from problems related to its wholesale banking activities. MAS imposes a number of regulatory requirements on the locally-incorporated banks to protect depositors, including the higher capital adequacy requirements that I mentioned earlier and a minimum paid-up capital of $ billion. However, there are Qualified Full Banks (QFBs) and foreign full banks which operate as branches and accept retail deposits without any capital in Singapore. MAS’ approach has been to closely supervise these branches. They are also required to be members of the deposit insurance scheme, which provides a safety net for all non-bank depositors by insuring their deposits up to $ per depositor per bank. There are clear benefits, however, for foreign banks with a large retail presence to operate their retail business from a locally-incorporated subsidiary. Where the banks have corporate or investment banking businesses, these activities can continue to operate as part of their existing branches. This will allow banks to continue to benefit from cost efficiencies associated with a branch structure and minimise changes to their business models. Moreover, by conducting retail activities from a separate locally-incorporated entity, the bank will be seen by local retail customers as being strongly committed to the local market for the long-term. International discussions on this topic are ongoing and MAS is monitoring the debate closely. Conclusion To conclude, Singapore has built a reputation for credibility and prudence in the last 40 years.
If, as expected, second round effects remain contained, the rate of inflation should drop back below 2% during the course of 2009, and long-term inflation expectations should remain low. Based on these assumptions, current monetary policy is appropriate. However, if inflation does not fall back due to second round effects as expected, the SNB would need to counter this development in order to anchor price stability. BIS Review 103/2008  1