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Amendment of the priority ranking of deposit liabilities of a bank
Presently, both non-bank and inter-bank deposit liabilities of a
bank rank ahead of other unsecured liabilities of the bank in the
event of a winding up of a bank. In recognition that non-bank
depositors are likely to be less well informed than banks and hence
less able to exercise market discipline, the Bill will amend the Act
to reorder the priority ranking placing all non-bank deposit
liabilities of a bank ahead of inter-bank liabilities, with the
latter ranking pari passu with other unsecured liabilities. This
will be consistent with the objective of protecting non-bank
depositors and encouraging banks to exercise prudence and market
discipline in respect of exposures to their bank counterparties.
ENHANCING
MAS' ROLE IN BANK RESOLUTION
MAS seeks to promote and preserve stability in the financial system
through a high standard of supervision. However it does not aim to
prevent the failure of any financial institution. Such a
"zero-failure" regime is neither feasible nor desirable. This is
consistent with the approach in many reputable jurisdictions as a
"zero-failure" regime causes moral hazard and places an excessive
regulatory burden on financial institutions. International
experience has also shown that where a bank is in distress or
insolvency, resolution should take place expeditiously to minimise
losses to depositors and other creditors, and to maintain stability
in the financial system.[1] However, compared to other
regulators, MAS currently has limited powers in dealing with a
distressed or insolvent bank. The Bill will accord MAS a wider role
in the resolution process and a broader range of resolution options.
The Bill will enhance MAS' role in the insolvency proceedings of a
bank, including the right to be heard in the proceedings and the
power to approve the appointed liquidator. This will provide better
assurance that depositors' interests will be safeguarded in the
winding up of a bank.
The Bill also provides a wider range of resolution options by
empowering MAS, with the approval of the Minister in charge of MAS
("the Minister"), to direct the sale of the business of a bank and,
in the case of a bank incorporated in Singapore, the issuance of new
shares, the restructuring of its capital or the sale of existing
shares to other investors. In exercising these powers
[2], MAS must be satisfied that the transfer
is appropriate, having regard to the interests of depositors of both
the transferor and transferee, as well as the stability of the
financial system in Singapore. The Minister may also give affected
parties a right to be heard before approving such a transfer, unless
it is not practicable or desirable to do so, for instance if an
expeditious sale or transfer is crucial to maintaining financial
system stability.
FACILITATING RISK-BASED SUPERVISION AND ALLOWING OPERATIONAL
FLEXIBILITY OF BANKS
Consistent with the risk-based supervisory approach adopted by MAS,
prudential requirements should be calibrated to an individual bank's
financial strength, risk profile and risk management capabilities.
The Bill allows the application of such bank-specific requirements
and will empower MAS to grant exemptions from requirements in the
Act in specific cases.
Enhancements to the liquidity risk supervision framework
As part of the enhancements to the liquidity risk supervision
framework, the Bill would allow the drawing down of liquidity
reserves to deal with liquidity stress situations. The other
changes to the framework would be set out in a Notice to be issued
by MAS at a later date.
EXPANDING
THE REGULATORY SCOPE FOR CREDIT CARD ISSUANCE
Presently, only banks and non-bank financial institutions are
subject to MAS' rules on the issuance of credit cards. The Bill
extends MAS' regulatory scope to all issuers targeting the Singapore
market and not just financial institutions.[3] Entities
that are not approved to issue credit cards in Singapore will be
prohibited from soliciting for or accepting card applications in
Singapore. MAS will also be empowered to inspect the operations of
approved card issuers for compliance with MAS' rules pertaining to
credit card operations.
Single party merchant credit[4] will continue to be
exempted from MAS' regulations. In addition, the Bill introduces a
new exemption for cards granting credit in small amounts not
exceeding S$500, allowing flexibility for companies to grant small
amounts of credit without raising substantial concerns about
encouraging Singaporeans to spend beyond their means.
UPDATING
REGULATIONS
In response to the developments in the banking sector, the Bill will
also update and streamline several banking regulations, for which
the underlying policy objectives are either no longer valid or not
being met effectively. Technical amendments will also be made to
clarify some provisions of the Act.
Lifting
the statutory reserve fund requirement
The requirement for banks in Singapore to maintain a statutory
reserve fund has been useful in building up banks' reserves.
However, with the enhancements to the regulatory framework over the
years, including revisions to MAS' capital adequacy framework for
Singapore-incorporated banks and the introduction of an asset
maintenance regime for foreign banks, there is no longer a need for
banks to maintain a reserve fund. The Bill repeals this requirement
for banks to maintain a statutory reserve fund, and allows them to
release the reserves over a 5-year period.
Qualification of the restriction on the use of the word "bank"
The restriction on the use of the
word "bank" protects consumers from being misled as to the status of
the entity they are dealing with. The Bill qualifies the
restriction to accommodate legitimate uses, such as (i)
representative offices of foreign-licensed banks, subject to
disclosure of their licensing status in home jurisdictions; (ii)
financial affiliates of a bank licensed in Singapore where the word
"bank" is used in conjunction with the related bank's name to
suggest an association with it; (iii) central banks of other
jurisdictions; (iv) international financial institutions as
prescribed by MAS; and (v) where it is clear the word "bank" is not
used in a financial sense (e.g. "Blood Bank", "Info Bank").
Flexibility for MAS to prescribe what constitutes a deposit
To facilitate MAS' response to product innovation, the Bill will
empower MAS to exclude or include any financial product from or in
the definition of deposit. This is intended to cater to products
that either legally satisfy the definition of "deposit" but do not
meet the economic characteristics of a deposit, or conversely meet
the economic characteristics of a deposit but do not satisfy the
legal definition of "deposit". An example of the latter is a
murabaha investment product, an Islamic variant of a time deposit,
where the amount placed by the customer with the bank arises from an
underlying sale and purchase transaction of assets in compliance
with Shariah principles.
Revision
of rules on the disclosure of information
The Bill qualifies the restriction on MAS' disclosure of information
furnished by banks, to allow disclosure of only non-customer
information under limited circumstances such as sharing of aggregate
unpublished information at international fora and contributing to
research projects. The revised rules on information disclosure
balance MAS' responsibility for surveillance and supervision of the
financial sector with its obligation to preserve the confidentiality
of individual banks' information.
MONETARY AUTHORITY OF SINGAPORE
8 November 2006
1 In dealing with a
distressed or insolvent bank, there are various bank resolution
options apart from a winding-up. A private sector resolution option
is often preferred by regulators internationally, for instance, via
recapitalisation of the bank by existing or new shareholders, or
acquisition of the business of the distressed or insolvent bank by
another bank. However, in the event that a private sector solution
is not possible, it may be necessary for the regulator to be able to
take action to resolve the distressed or insolvent bank quickly and
safeguard the interests of depositors and maintain the stability of
the financial system.
2 The grounds for exercising these powers are, where (a)
the bank informs MAS that it is, or is likely to become, insolvent
or unable to meet its obligations or that it has suspended or is
about to suspend payments; (b) the bank becomes unable to meet its
obligations, or is insolvent, or suspends payments; (c) MAS is of
the opinion that the bank (i) is carrying on business in a manner
likely to be detrimental to the interests of its depositors or
creditors; (ii) is, or is likely to become, insolvent or unable to
meet its obligations, or that it is about to suspend payments; (iii)
has contravened any of the provisions of the Act; or (iv) has failed
to comply with any condition attached to its licence; or (d) MAS
considers it to be in the public interest to do so.
3 Separately, MAS and the Ministry of Law have proposed a
consistent regulatory regime for unsecured personal credits granted
by financial institutions and moneylenders. A public consultation
was held and the feedback would be considered in finalising the
changes.
4 In the case of single party merchant credit, the card
is used only for transactions with the issuer, who is the sole party
bearing the credit risks of the cardholders.
Source:
www.mas.gov.sg Media Release 8
Nov 2006
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Banking (Amendment) Bill - First
Reading in Parliament
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