Financial Impact of Crisis and Lessons Learnt
Based on the supervisors' surveys, exposures of financial institutions in Singapore to failed or distressed institutions were not significant relative to their assets and did not pose any systemic risk. Confidence in our financial system remained high. Our local financial institutions, with their strong capital positions, have remained resilient in the midst of increased volatility and downtrend in the financial markets. Financial institutions in Singapore have generally continued to function in an orderly manner.
Notwithstanding this, there are important lessons that financial institutions should draw from the current crisis,
to improve their own risk management policies and controls on a holistic firm-wide basis. Board and senior management must take the lead and be actively involved in ensuring that the risk management framework of their institutions is robust. They should be prepared to provide effective challenge and ask fundamental questions about risks taken. MAS will continue to engage financial institutions on their risk management practices. We will also assess whether their estimates of potential losses, as well as capital, liquid and asset buffers are based on sufficiently robust stress-testing frameworks that are in line with best practices.
Financial supervisors also have to review their rules to address identified weaknesses. MAS remains engaged in the work of the FSB and international standard-setting bodies to address issues raised by the crisis. We will continue to assess supervisory standards and guidance with a view to having them adopted by the industry where necessary.
Following the issuance by the Basel Committee on Banking Supervision of Enhanced Principles for Sound Liquidity Risk Management and Supervision on 25 September 2008, MAS has asked all banks to embed the principles into their liquidity risk management framework. We will continue to assess the adequacy of banks' liquidity risk management practices and internal control systems as part of our supervision process. MAS is also closely monitoring international developments in capital regulation, with the aim of adopting and adapting these recommendations where relevant and appropriate to Singapore's context.
In the area of transparency, the "Report of the Financial Stability Forum4 on Enhancing Market and Institutional Resilience", issued in April 2008, had recommended disclosure practices for financial institutions. Our locally-incorporated banks have taken steps to provide additional risk disclosures for material exposures that are relevant to the prevailing market conditions, in accordance with the recommendations.