Financial Crime World

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Banking System and Supervisory Framework in Singapore

Banking System

Singapore has a universal banking model that allows banks to own insurance companies and securities firms. This provides a more diversified source of income but raises the complexity of managing and supervising the banking groups.

  • Key Features:
    • Universal banking model
    • Banks can own insurance companies and securities firms
    • Complexity in managing and supervising banking groups

Supervisory Framework

The Monetary Authority of Singapore (MAS) is responsible for banking supervision, financial stability policy formulation, and crisis management. MAS has announced plans to require foreign branches with significant retail operations in Singapore to locally incorporate their retail operations.

  • Key Features:
    • Monetary Authority of Singapore (MAS) as the supervisory body
    • Responsibility for banking supervision, financial stability policy formulation, and crisis management
    • Plans to require local incorporation of foreign branches with significant retail operations

Preconditions for Effective Banking Supervision

The report notes that the assessment of preconditions is beyond its scope, but a factual review facilitates an understanding of the environment in which the banking system and supervisory framework operate.

  • Key Preconditions:
    1. Sound and Sustainable Macroeconomic Policies: Low interest rate environment and abundant global liquidity.
    2. Well-Established Framework for Financial Stability Policy Formulation: MAS is responsible for financial stability policy formulation, and macroprudential tools are deployed to address credit and inflation risks in specific asset markets.
    3. Clear Framework for Crisis Management, Recovery, and Resolution: MAS has a resolution strategy available under the Banking Act and conducts simulation exercises at industry-wide levels.
    4. Appropriate Level of Systemic Protection (or Public Safety Net): The Singapore Deposit Insurance Corporation (SDIC) insures the first S$50,000 of Singapore dollar deposits placed by non-bank depositors.
    5. Well-Developed Public Infrastructure: Essential for supporting financial stability and crisis management.

Macroeconomic Policies

Singapore has a low interest rate environment and abundant global liquidity. Macropudential tools are deployed to address credit and inflation risks in specific asset markets.

  • Key Features:
    • Low interest rate environment
    • Abundant global liquidity
    • Macropudential tools used to address credit and inflation risks

Financial Stability Policy Formulation

MAS is the macroprudential authority in Singapore, responsible for financial stability policy formulation. The Chairman’s Meeting of MAS presides over both microprudential and macroprudential policies.

  • Key Features:
    • MAS as the macroprudential authority
    • Responsibility for financial stability policy formulation
    • Microprudential and macroprudential policies under one umbrella

Crisis Management

MAS has a resolution strategy available under the Banking Act, including winding up, taking operational control, transfer or disposition of business, etc. Simulation exercises are conducted at industry-wide levels, and MAS holds meetings with the Ministry of Finance (MOF) to collaborate on crisis management preparations.

  • Key Features:
    • Resolution strategy under the Banking Act
    • Simulation exercises for crisis management preparations
    • Collaboration with MOF on crisis management

Public Safety Net

The Singapore Deposit Insurance Corporation (SDIC) was established in 2006 to protect small depositors. Membership is mandatory for retail deposit-taking institutions, and it insures the first S$50,000 of Singapore dollar deposits placed by non-bank depositors.

  • Key Features:
    • SDIC as the public safety net
    • Mandatory membership for retail deposit-taking institutions
    • Insurance coverage up to S$50,000