New liquidity rules for banks to start taking effect from Jan 2015

Tighter rules aimed at bolstering the cash buffer banks must hold in case of emergency start will start taking effect in January, Trade and Industry Minister Lim Hng Kiang said on Tuesday, June 24, 2014. -- PHOTO: ST FILE
Tighter rules aimed at bolstering the cash buffer banks must hold in case of emergency start will start taking effect in January, Trade and Industry Minister Lim Hng Kiang said on Tuesday, June 24, 2014. -- PHOTO: ST FILE

Tighter rules aimed at bolstering the cash buffer banks must hold in case of emergency start will start taking effect in January, Trade and Industry Minister Lim Hng Kiang said on Tuesday.

The new regulations centre around what is called a liquidity coverage ratio, a standard introduced under Basel III, the name given to wide-ranging reforms being implemented for the global banking industry.

It seeks to ensure that banks hold sufficient high-quality liquid assets to match their total net cash outflows over a 30-day period.

The Monetary Authority of Singapore consulted the public and the banking industry on these changes last August and took their feedback into account when finalising the new rules, Mr Lim said at an Association of Banks in Singapore dinner.

One major change is that the new liquidity framework will apply to all currencies.

Many banks in Singapore hold a large portion of their liabilities, which include deposits, in foreign currencies, Mr Lim noted.

The current liquidity regime, known as the Minimum Liquid Assets (MLA) requirement, applies to Singapore dollar-qualifying liabilities only.

Both local and foreign banks will also need to meet a Singdollar liquidity requirement under the new rules.

However, the MAS will adopt a two-tier approach in this area, Mr Lim said.

Banks deemed systemically important to Singapore will have to meet the new requirements but all others can choose to comply with the new regime or remain on the MLA.

The three local banks will have to to meet:

- a Singdollar liquidity coverage ratio of 100 per cent by January next year; and

- an all-currency liquidity coverage ratio of 60 per cent, also by January but increasing by 10 per cent each year to 100 per cent by 2019.

This is consistent with the Basel III implementation timeline for all internationally active banks.