Are deposits with foreign banks safe?

Reader Stanley Ong wrote in to askST about the safety of banks in Singapore. He wrote: "We believe that local banks (DBS, OCBC and UOB) are safe. But are deposits kept with foreign banks safe, given that the SDIC insures each depositor only up to $50,000?"

Senior correspondent Goh Eng Yeow answers.

In Singapore, the role of the banking regulator - the Monetary Authority of Singapore (MAS) - is to apply the same rigorous standards of licensing, regulations and supervision to both local and foreign banks operating here.

To reduce the risks of a bank failure, MAS requires financial institutions to have in place sound risk-management systems and internal controls.

An MAS spokesman said: "The introduction of a deposit insurance (DI) scheme is another way of reducing the impact of a failure on a depositor. In Singapore, deposits are insured up to a maximum of $50,000 in the event of a bank failure."

If you want a foolproof way of protecting your deposits - assuming that you have a big amount to stash away - you might want to consider breaking them up into smaller sums of $50,000 or less, and depositing them separately into banks with full licences here.

Thus, if you want a foolproof way of protecting your deposits - assuming that you have a big amount to stash away - you might want to consider breaking them up into smaller sums of $50,000 or less, and depositing them separately into banks with full licences here.

For a list of the full-licensed banks, check out the MAS website at https://masnetsvc.mas.gov.sg/ FID.html

As an added protection, MAS has a framework for identifying and supervising what it labels as "domestic systemically important banks (D-SIBs)".

The list of such banks includes the three local banks - DBS, OCBC Bank and United Overseas Bank - as well as four foreign lenders - Citibank, Standard Chartered, Maybank and HSBC.

D-SIBs are banks that are considered to have a significant impact on Singapore's financial system and proper functioning of the broader economy, and MAS might apply additional supervisory measures to them.

Such banks with a significant retail presence in Singapore also have to locally incorporate their retail operations.

Locally incorporated D-SIBs are required to meet higher capital requirements. This refers to the capital that they must set aside to absorb losses without causing them to go out of business, as well as the money to absorb losses to provide a degree of protection to depositors.

These banks also have to comply with other safety measures such as the liquidity coverage ratio, which seeks to ensure that they have enough high-quality liquid assets to match total net cash outflows over a 30-day period.

This is to make sure they have enough to tide them over any market shock that might cause them to suffer a credit squeeze.

A version of this article appeared in the print edition of The Straits Times on October 29, 2016, with the headline 'Are deposits with foreign banks safe?'. Print Edition | Subscribe