Singapore Allows Creditors to Avoid Losses From Bank Failures

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The Monetary Authority of Singapore (MAS) would likely resolve a failing domestic bank through a bailout, mean the onus to save a bank would fall on equity holders only instead of making the creditors accept haircuts, according to sources.

Apparently, this is the result of subordinated buffers for bail-ins in Singapore are thin and make up only 1-2% of the assets at OCBC,DBS and UOB. Moreover, creditors would be able to share the losses and drawbacks with shareholders when a bank fails, through bail-ins.

The Financial Stability Board (FSB) disclosed that Singapore has made progress in the bank resolution reform, but its effectiveness could be limited because of a narrow scope of liabilities which can be bailed in.

However, the bail-in has become more and more popular in recent years. With a bail-in, the creditors experience the majority of the rescue cost in one of two ways, either by restructuring their debt to equity or longer maturities or by taking a haircut on their claims.