Box Story 3: Basel II Implementation in Singapore
Basel II took effect in Singapore on 1 January 2008, marking a
milestone in MAS' efforts to implement a more risk-sensitive capital
framework for banks incorporated in Singapore.
Formally known as "International Convergence of Capital
Measurement and Capital Standards: A Revised Framework",
Basel II is a new regulatory capital standard established by the
Basel Committee on Banking Supervision in June 2004.
The release of MAS' Basel II rules was a culmination of extensive
industry and public consultations since 2004. Besides formal
consultations, MAS engaged the banks regularly through meetings
and onsite visits to assess their implementation progress. As an
example of our belief in the importance of working closely with
the industry through the Basel II process, MAS sponsored the
formation of an industry working group to develop requirements
for disclosure and regulatory reporting. MAS also actively supported
initiatives by the banking supervisory community to promote crossborder
cooperation and communication on Basel II implementation.
Such efforts were aimed at ensuring a smooth implementation of
the new framework in Singapore by addressing potential
implementation challenges as early as possible and allowing the
industry to be closely involved in policy formulation.
In addition, MAS conducted onsite supervisory visits to assess
banks' readiness to adopt Basel II's more sophisticated approaches
to measuring, managing and providing capital for credit risk. The
reviews focused on the banks' oversight and control frameworks,
as well as their systems and processes.
The implementation of Basel II will encourage further advances
in the risk management practices of banks in Singapore. This
would in turn enhance the safety and soundness of our banks.
The framework comprises three "pillars". Pillar 1 prescribes rules
on how banks should calculate the minimum capital that they
are required to hold for credit, market and operational risks. Pillar
2 describes the accompanying supervisory review of a bank's
internal capital adequacy assessment. It encourages banks to
continually develop and use better risk management techniques
to monitor and manage their risks, and to have processes for
assessing their overall capital adequacy in relation to their risk
profile. Pillar 3 prescribes minimum disclosure requirements to
facilitate market discipline.
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