To ask the Prime Minister what measures are used to assess and maintain the stability of the Singapore financial system (i) at the level of individual financial institutions (ii) at a whole-of-system level and (iii) in respect of how polices affecting individual financial institutions can influence system stability through network structure and network effects.
Answer by Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister in charge of MAS:
1. MAS promotes financial stability in Singapore through microprudential supervision of individual financial institutions, as well as conducting macroprudential surveillance of the financial system as a whole. The two are related and closely coordinated, to provide a comprehensive approach to preserving a stable and sound entire financial system.
2. In its microprudential supervision, MAS covers all financial institutions (FIs) � banks, insurers, and capital market players. Only well-managed and reputable FIs are allowed to operate in Singapore. Once admitted, FIs must continue to meet the necessary regulatory requirements and standards. In designing these requirements, MAS draws reference from global standards and best practices, consults industry and other stakeholders, and carries out impact studies. This allows MAS to consider potential spillover effects of regulations on the broader economy and financial system and finetune the regulations as appropriate. This is further complemented by on-site inspections and regular off-site reviews of FIs' operations to check that they are managing their risks properly. In this regard, MAS adopts a risk-focused supervisory approach, paying closer attention to FIs that are more systemically important.
3. As for macroprudential surveillance, MAS seeks to identify potential financial stability risks arising from global and domestic economic and financial market developments. Like other major regulators, we want to identify these risks before they materialize, so that appropriate measures can be taken to avert systemic problems.
4. MAS employs a variety of tools to do this. These include: (a) a broad suite of indicators to monitor any build-up of risks in the system; (b) model-based approaches to assess systemic risk and policy effectiveness; (c) stress tests to understand how adverse scenarios could affect individual FIs as well as the financial system; and (d) network analysis to assess how financial distress could spread from one FI to others in the system through various interconnections.
5. These tools help MAS identify common vulnerabilities across FIs and in the corporate and household sectors, as well as the channels by which risks can propagate through the financial system.
6. MAS has also identified a group of domestic systemically important banks (D-SIBs). These D-SIBs are subject to additional regulatory requirements, such as higher capital and liquidity buffers, enhanced disclosure, and recovery and resolution planning, to strengthen their resilience.
7. MAS is committed to proactive surveillance and robust supervision to safeguard the stability of the financial system in Singapore. The International Monetary Fund's Financial Sector Assessment Programme in 2013 found Singapore's financial sector to be well-regulated and supervised and described the regulatory and supervisory framework as among the best globally.
Source: Monetary Authority of Singapore