Source : Straits Times - 6 Oct 2008
No need for panic as regulatory approach ensures banks are solid
THE questions came fast and furious: How well are insurance policies protected? Are offshore banks safe? Can the Government make banks raise the guaranteed amount for deposits?
In an uncertain economic climate that has seen seemingly rock-solid financial institutions in the United States topple one after another, anxious residents yesterday quizzed the Finance Minister himself on Singapore’s financial system.
Mr Tharman Shanmugaratnam assured them Singapore is ‘not in the same situation as the US’.
‘We need not panic,’ he told residents at a dialogue in Toa Payoh East.
One resident noted that if there is a run on a bank here, depositors are protected for up to $20,000 in their accounts. ‘I think many of us have more than $20,000. Can the minister do something to make the bank increase the guaranteed amount?’ he asked.
Mr Tharman replied: ‘I can assure you our Singapore banks are well regulated and there is no risk and no reason whatsoever to have a run on our banks.’
Singapore has been ‘old-fashioned’ in its strict regulatory approach to make sure banks have adequate assets, and do not over-lend to property owners.
‘So frankly, you need not worry about how solid our banks are, your money is safe,’ he said.
If banks are made to increase the guaranteed amount from $20,000, it will mean higher costs, ultimately borne by the customer. ‘So I would say this system is better: regulate the banks well, keep deposit insurance cost low.’
To another resident who wanted to know how well-protected Singaporeans’ insurance is, Mr Tharman stated categorically: ‘You can have equal confidence in our insurers.
‘Any insurance company operating in Singapore, including the foreign companies, have to abide by strict regulations.’
As for offshore banks, they are required to maintain assets in Singapore to meet their liabilities, he added.
‘It is not possible for anyone to say all banks are safe, but what I can say is our local banks are safe, and foreign banks in Singapore are subject to tighter regulations compared to most other places.’
Ultimately, consumers must have their eyes open when going to financial institutions, and judge where their money is safe, he said. ‘This is a responsibility that you have. Especially when people offer you higher interest or higher returns, your eyes must open even wider.’
The minister repeated this point when telling reporters later that there were lessons to be gleaned from the crisis.
The system can be improved, he acknowledged, whether on the part of the regulator, the Monetary Authority of Singapore (MAS); financial institutions; or the consumer.
‘The MAS approach is one that balances regulation with responsibility on the part of the institution and the investor. All three play a part, and in all three areas, I’m sure there can be improvements, coming out of the recent problems.’
But he warned against over-regulating, saying risk is inherent in the system.
‘We have to avoid swinging in a pendulum-like fashion when it comes to the regulation of financial products.
‘There have to be improvements in marketing and selling and disclosure. There are learning points coming out from the recent problems.
‘(But) let’s not swing to over-regulation because that is going to increase costs and it’s going to reduce the range of products that meet everyone’s needs.’
He cited as an example Lehman Bonds, which, as late as July, were rated A1 by credit-rating agency Moody’s. The highest rating is Aaa.
‘Should MAS say A1 bonds should not be bought by people? I think that would be over-regulation, but it turned out that Lehman Bonds went bust.
‘So it’s an example of how there is risk in the system, there is no way you can get it out of the picture by over-regulation unless you over-regulate to the extent you cut out options to sensible investors.
‘So let’s find a suitable middle ground (to) improve the system.’
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