Monetary Policy in Singapore and the Global Financial Crisis

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b1110

Challenges for the Singapore Economy

nature of the banking system in Singapore in which local ownership

over key financial institutions is predominant, despite the openness of

the Singapore economy to trade and capital flows; and the ability of

the MAS to provide funds and effect any necessary restructuring

through ‘moral suasion’ rather than large bailouts or nationalization.

Although Singapore had introduced substantial financial reforms in

the late 1990s, including the gradual opening up of the local banking

system to international participation, a change in emphasis from reg-

ulation to supervision in line with the prevailing view that financial

markets were generally efficient, and an incremental switch from a

rules-based to a risk-management approach, all of which might have

increased the risk of contagion from the crisis, in fact Singapore’s

banks were not heavily exposed to toxic assets and by all accounts had

sound financial fundamentals (see Chapter 2).

Nonetheless, some lessons have been learned. For example, the

need to tighten supervision over off-balance-sheet activities in the

‘shadow’ banking system and the marketing and selling of structured

investment products. In February 2010 MAS announced new safe-

guards, including a cooling-off period for structured products 

and published the findings of an investigation into the sale of

structured notes linked to Lehman Brothers.

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They found some non-

compliance with MAS Notices and Guidelines and banned some

financial institutions from selling them for periods between six months

and two years. MAS also issued a consultation paper to review the 2006

Deposit Insurance Scheme and replace the full guarantee for individual

bank deposits introduced during the crisis. The original insurance cov-

erage of S$20,000, funded by banks and insurance companies licensed

to accept deposits, will be increased to S$50,000 and the scope of the

coverage of the scheme extended to non-bank depositors.

MAS is also responding to regulatory changes arising from the 

G-20 Finance Ministers and Central Bank Governors Financial Stability

Board and Basel Committee on Banking Supervision and International

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C. H. Kwan and P. Wilson

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According to the MAS some 80% of investors had recovered at least half of the

money invested as of February 2010 (The Straits Times, April 10, 2010).

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