Financial system review shows MAS focus on high regulatory standards

The Monetary Authority of Singapore (MAS) is more likely to resolve a failing bank issue by getting equity holders to pay the price than by forcing creditors to accept haircuts, Moody's Investors Service has said in a report.

Citing a recent review of the Republic's financial system by the Financial Stability Board (FSB), Moody's noted that Singapore's framework for "bail-ins" covers a narrow band of liabilities, which would limit the framework's ability to get creditors to share the pain in a default situation.

At the heart of the issue is the question of how to handle a failing bank.

Singapore's bail-in framework excludes senior debt from the pool of "bail-in-able" liabilities.

FSB and Moody's have noted that this will limit the MAS' ability to carry out an effective bail-in if one of Singapore's major banks gets into trouble.

Moody's acknowledged that the limitation is mitigated by the fact that the MAS is more focused on macroprudential policies and high regulatory standards that can prevent the need to rescue a bank in the first place.

Indeed, Singapore's banks have the highest baseline credit assessments by Moody's in the world.

"Under the resolution regime in its current form and in the absence of a meaningful buffer of bail-in-able liabilities, we believe the MAS would likely resolve a failing domestic bank through a bailout," Moody's said.

In response, an MAS spokesman yesterday said the strength of a bank and its resolvability - or steps governing a failure in an orderly manner - need to be seen in the context of high regulatory standards as the first line of defence, as Moody's report had noted.

"This includes liabilities that can be bailed-in as well as Singapore's capital requirements that are 2 percentage points higher than Basel standards, rigorous stress testing and close supervisory oversight." - THE STRAITS TIMES