Y2K Liquidity Scheme for Banks and Finance Companies
4 October 1999... MAS today announced that it will establish a Y2K liquidity scheme to help meet temporary Y2K-related liquidity needs of banks and finance companies. The liquidity scheme will be available for a two-month period, from 29 November 1999 till 28 January 2000.
In a circular addressed to the CEOs of banks and finance companies in Singapore, MAS said that the liquidity scheme would be an additional measure to provide temporary assistance to banks and finance companies in the unlikely event that they are unable to obtain funding in the market during the available period.
MAS' Deputy Managing Director (Financial Supervision), Mr Tharman Shanmugaratnam, said that the Y2K liquidity scheme was the third of a three-pronged approach to avoid liquidity shortages that could affect the financial system. The first comprised the liquidity management plans of banks and finance companies themselves, which included establishing adequate stand-by credit lines either from their counterparties, head offices or parent banks to meet liquidity needs due to Y2K. The second prong was MAS' readiness to provide sufficient liquidity in the banking system through its normal money market operations. Together with the Y2K liquidity scheme for individual banks and finance companies, these measures would ensure the smooth functioning of Singapore's money market during the cross-over period.
Mr Shanmugaratnam also said that the Authority expected few financial institutions if any to make use of the scheme. The financial sector has achieved a high state of overall Y2K readiness, with most internal and external testing activities completed. "We are fully confident that Singapore's financial system will remain sound and resilient in the transition into the new millennium," said Mr Shanmugaratnam.
Under the liquidity scheme, MAS will provide S$ funds to banks and finance companies facing temporary Y2K-related liquidity shortages through repurchase transactions (repos) of Singapore Government Securities (SGS) and bonds issued by Singapore Statutory Boards. The repos will be priced at 1.5% above applicable market rates of the previous working day. The tenure of repos will be up to 3 months. If they face exceptional liquidity needs, banks and finance companies will be allowed to use their SGS held for Minimum Liquid Assets purposes, subject to limits to be approved by MAS. Under such circumstances, the repos will only be for a tenure of two days and priced at 4% above the applicable market rates, or 8%, whichever is higher.