UPDATE 1-Singapore proposes new liquidity rules for banks to manage risks

Tue Jun 24, 2014 9:24am EDT

(Adds liquidity coverage ratios, more quotes from speech; foreign banks likely to be affected)

By Saeed Azhar and Anshuman Daga

SINGAPORE, June 24 (Reuters) - Singapore is to bring in new rules to ensure all banks operating in the city-state have enough liquid assets to withstand a sudden shock to the financial system, falling in line with the global regulatory trend for tougher liquidity rules.

DBS, Oversea-Chinese Banking Group and United Overseas Bank, and foreign banks with a major local presence will have to meet a requirement proposed by the Basel Committee on Banking known as the liquidity coverage ratio (LCR) by 2015, Lim Hng Kiang, Singapore's trade and industry minister, said in a speech on Tuesday.

Regulators proposed the LCR in the wake of the 2008 financial crisis to ensure banks have a big enough buffer of top quality assets such as cash and government bonds so they can withstand 30 days of outflows at a time when it is tough to get funding on the wholesale markets.

Under the rules formulated by Singapore, the three local banks will have to meet the full LCR requirement for Singapore-dollar assets by January 2015 and an all-currency LCR of 60 percent. They will then have to meet the all-currency LCR in full by 2019, meaning they will need to have enough assets to withstand a sudden outflow of deposits and other liabilities, regardless of the currency.

Foreign banks will have to meet a Singapore dollar LCR of 100 percent and an all-currency LCR of 50 percent. These rules for foreign banks will apply from January 2016.

Lim did not specify which assets will be regarded as "high quality", an issue that has been of concern, as assets regarded as liquid in western markets, such as domestic government bonds, are scarce in Singapore due to a low level of public debt.

DBS Group CEO Piyush Gupta told Reuters that initially the central bank was proposing a separate liquidity requirement for the U.S. dollar alone, which they have done away with due to opposition from the banking industry.

The industry is comfortable with the new rules because now it covers all currencies and it is easy to meet the liquidity requirements, he said.

"The crisis experience shows how the buildup of risks can severely destabilise even the most developed and sophisticated financial markets," Lim, who is also the deputy chairman of the Monetary Authority of Singapore (MAS), told a banking event.

"Securing the safety and robustness of our banking sector must be an ongoing process," he added.

NEW FRAMEWORK

Lim also said the central bank will come up with a new framework of rules for local and foreign banks with a large retail presence in Singapore, to ensure the domestic banking system is protected in the event they run into difficulties.

This will include ensuring they have a well-developed recovery and resolution plan, so they have a clear blueprint of what to do in the event they were to become distressed.

MAS proposes to regard a bank as having a significant retail presence if its market share of resident non-bank deposits is 3 percent or more, and if it has 150,000 or more depositors with accounts under S$250,000 ($200,000).

This suggests these rules will apply not only to Singapore's three main banks, but also to international lenders such as Citigroup, Standard Chartered and Malaysia's Maybank. ($1 = 1.2503 Singapore Dollars) (Additional reporting by Rachel Armstrong; editing by Louise Heavens)

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