And while the presence of foreign banks in these uncertain times poses potential risks to the financial system here, Singapore must remain open to the world, he added.

'Walling ourselves in does not mean that we would be safe; it just means we will starve,' he said.

Mr Lee was speaking at a dinner at the Shangri-La Hotel to celebrate Standard Chartered Bank's 150th anniversary here.

He said that in normal times, it may not matter who owns the banks, as they make loans based on similar commercial considerations. 'But in a crisis, it makes a crucial difference whether a bank has a long-term stake or a peripheral interest in Singapore,' he said.

Banks that have a long-term stake in Singapore - such as the three local banks - will consider the merits of borrowers and continue to nurture relationships with established clients.

This helps their clients and the economy to see through a crisis, Mr Lee noted.

But if Singapore was merely a peripheral part of a bank's business, it may cut staff or its presence here indiscriminately. 'If all banks behaved that way, the economy would be in trouble,' he added.

Still, foreign banks have come to play an important role in Singapore, and their entry has been good for the financial sector, said Mr Lee.

Many have expanded operations and made Singapore a regional or global platform for key banking services. The sector has grown by almost 80 per cent over the last 10 years. More diversity and an increased use of technology have also resulted in greater choice, better services and more competitive prices, he added.

Read the full story in Friday's edition of The Straits Times