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Source:
www.mas.gov.sg |
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Speech by Ms. Tay Bee Bee,
Director Monetary Authority of Singapore |
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Derivative FitchGlobal
Structured Credit Conference 14 May 2007, Pan Pacific Hotel
Singapore |
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An Excerpt |
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According to Fitch, structured finance
issuance has outstripped corporate issuance for the past 2 years. |
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Notably, among the various securitized asset
classes, Collateralised Debt Obligations, or CDOs have registered the
fastest growth in recent years. |
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In the last 5 years, CDO global issuances
have grown more than 6 fold to US$600 billion in 2006, with the market
doubling in the past year. Excitingly, the growth trend in structured
finance and CDOs are expected to continue in the next few years... |
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While the prospects for the Asian market
look promising, the market is not without its challenges. It is clear to
market practitioners that there are a host of issues that need to be
addressed in many countries in the region. These issues would need to be
resolved if we were to see explosive growth of structured finance in the
region... |
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Implications for Singapore |
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As the Asian market grows, we can expect to
see the risks and challenges faced by the US and European markets
replicated here. |
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What can the authorities do to mitigate
these risks? Singapore¨s approach is to ensure that our regulatory
framework remains appropriate and robust in addressing these market
developments. For example, we have issued banking guidelines with
respect to securitization and credit derivatives and we are constantly
reviewing the framework to take into account new instruments and
financial innovations. |
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Financial institutions also need to raise
their risk management capabilities and oversight to deal with such new
instruments... |
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Our approach has served us well. Over
the last 3 years, Singapore managers originated more investment
CDOs than any other country in Asia ex-Japan, with an estimated
S$6 billion of CDOs in 2006. |
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In addition, from managing
predominantly US-based deals, Singapore managers are now looking
at increasing the Asian content in their deals. A number of
international CDO managers have also set up shop in here, with the
view to manage Asian-based CDOs. |
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Now, allow me to take a moment to
highlight some of the progress we have made in the regulatory
regime in Singapore, to keep pace with the market development and
growth in structured finance products. |
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In Asia, Singapore has been pro-active
in providing clarity and certainty on the treatment of CDOs into
our regulatory regime. Banks have been allowed to invest in all
tranches of CDOs, while insurance companies have been permitted to
invest in the equity tranches of CDOs since January 2006. |
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Also, MAS has updated and amended the
banking rules on securitization in September 2005. As an
illustration of the amendments, synthetic arbitrage transactions
are now clearly excluded from the scope of those rules. |
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Previously, banks acting as
originators or managers in securitisations had to seek MAS¨ prior
approval for these transactions. With the amendments, they need
only notify MAS after the transaction. Banks have welcomed these
and other changes to the rules. |
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Allowing financial institutions to
invest in CDOs is, of course, only a first step in facilitating
participation in this new asset class. |
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Another issue is the amount of
regulatory capital that banks and other financial institutions are
required to hold against the credit exposures they have acquired. |
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In this respect, MAS has also taken
steps to refine the calibration of regulatory capital required for
CDO investments. This was done through recent amendment to MAS
Notice 628 to banks. |
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Previously all CDO investments,
regardless of rating, were deducted in full from capital. With the
amendment, tranches rated BBB- and above are risk weighted at
100%. |
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The treatment is closer to the risk
weights under proposed Basel II standardized approach, which
applies a 20% risk weight for investments rated AA- and above. |
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However, even with this adjustment, we
are still more stringent than Basel II standards for rated
tranches for the time being. |
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Manpower Training |
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Lastly, I would like to share with you
our thoughts on manpower and training. The availability of skilled
professionals for structured finance is crucial and the MAS is
committed to developing the talent pool for the industry. |
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First, we have put in place a
Financial Training Scheme. This scheme provides co-funding for
short-term courses or attachments for risk management
professionals. |
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Last year, we also launched the
Finance Scholarship Program. The aim of this program is to help
groom a critical mass of specialists in targeted fields, such as
financial engineering and risk management. The scheme provides
scholarships for the pursuit of higher degrees at top-ranked
universities in these fields globally, as well as in Singapore. |
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These efforts are complemented by
efforts undertaken to provide suitable training program for CDO
professionals. An example is the Certificate in Financial
Engineering, launched by The Risk Management Institute, in
collaboration with the UC Berkeley. |
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In conclusion, Asia is entering a very
interesting phase in the development of the structured credit
market for the region. We strongly believe in this vision and are
committed to building Singapore as a centre for structured finance
activities. We welcome you to be a part of this exciting growth
and development. |
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Full Text of Speech |
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Source:
www.mas.gov.sg Media Release
14 May 2007 |
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FrontPage Edition: Mon 4 June 2007
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