Aiyar, Shekhar; Calomiris, Charles and Wieladek Tomasz, 2012, “Does macropru leak? Evidence from a UK policy experiment,” Bank of England working paper No. 445, January.
Amador, J. and S. Cabral, 2008, “The Portuguese Export Performance in Perspective: A Constant Market Share Analysis,” Banco de Portugal Economic Bulletin-Autumn, pp. 201–221
Basel Committee on Banking Supervision, 2013, “Report to G20 leaders on monitoring implementation of Basel III regulatory reforms,” August.
De Munnik, D., J. Jacob, and W. Sze, 2012, “The Evolution of Canada’s Global Export Market Share,” Bank of Canada Working Paper 2012-31
Elliott, Douglas, 2011, “Building a global financial center in Shanghai – Observations from other centers,” John L. Thornton China Center at Brookings, June.
Hong Kong Monetary Authority, 2014, “An effective resolution regime for financial institutions in Hong Kong,” Consultation Paper, January.
Huat, Tan Chwee; Lim, Joseph and Chen, Wilson, 2004, “Competing International Financial Centers: A comparative study between Hong Kong and Singapore.” Paper for Saw Centre for Financial Studies and ISEAS Conference, November.
International Monetary Fund, 2013, “Mandatory Financial Stability Assessments Under the Financial Sector Assessment Program: Update”, November.
Jiminez, N. and E. Martin, 2010, “A Constant Market Share Analysis of the Euro Area in the Period of 1994-2007,” Banco de España Economic Bulletin 2-16
Kui, Ng Beoy, 1998, “Hong Kong and Singapore as International Financial Centres: A comparative Functional Perspective.” Nanyang Technological University, Singapore, August.
Morgan, Peter J. and Pontines, Victor, 2013, “An Asian Perspective on Global Financial Reforms,” ADB Institute Working Paper No. 433, August.
Oliver Wyman, 2010, “The Future of Asian Banking,” Volume 1, “The shaken and the stirred: How regulation and economic policy will transform Asian banking.”
Park, Jae Ha, 2013, “Financial Regulatory Reforms after GFC: Analysis from Asian Perspectives,” Asian Development Bank Institute, Lowly Institute for International Policy, Sydney, May.
Pauly, Louis W., 2011, “Hong Kong’s International Financial Centre: Retrospect and Prospect,” Report for the Savantas Policy Institute, 5 February.
Inputs from Karim Youssef, and the Research Assistance of Federico Diaz Kalan are gratefully acknowledged.
Elliott, 2011: “A financial center is simply a location where a substantial amount of financial business is conducted.” Jarvis, 2009 and Mainelli, 2006: “Common definitions of financial centers thus normally highlight their role as places of intense exchange relations which exhibit a dense clustering of a wide variety of financial businesses in one centralized location.”
In its mandatory financial stability amendment 2013 update, the IMF lists Hong Kong SAR the 19th and Singapore the 23rd most important financial centers.
Technically, interconnectedness is defined as eigenvector centrality, i.e. the weighted average of all counterparties’ centrality. Eigenvector centrality has the advantage of being based on weighted data that takes into account that exposures are of different sizes. Other standard measures, such as betweenness centrality or clustering coefficients, are typically based on a set of interconnections that only measure the existence of a link rather than its strength.
This interconnectedness is also reflected in the recent IMF Board Paper “Mandatory Financial Stability Assessments Under the Financial Sector Assessment Program: Update”.
Here, we do not perform similar forecasts for banking claims because of large gaps in published data in bilateral BIS statistics.
Primary issues from Asian issuers is growing, and the majority of allocation of credit securities are now made to Asian investors, reflecting a re-balancing of the investor base into the region.
See “Singapore Financial System Stability Assessment” (FSSA). MAS has the following responsibilities: monetary policy and sustainable economic growth; foreign reserves management; maintaining financial stability, and fostering a sound financial center. In addition, MAS is in charge of micro-prudential supervision for all financial intermediaries and macro-prudential supervision, and acts as the resolution authority.
The ASEAN Disclosure Standards Scheme aims to facilitate fund raising activities as well as to enhance investment opportunities within ASEAN capital markets. http://www.mas.gov.sg/news-and-publications/press-releases/2013/mas-joins-in-implementation-of-cross-border-securities-offering-standards.aspx
HKMA, International Financial Center section, 2013 Annual Report: http://www.hkma.gov.hk/media/eng/publication-and-research/annual-report/2013/13_International_Financial_Centre.pdf
In 2013, the governor of the Bank of England indicated that London could “play an important role in the financial opening of China” and that it was “open for business” (Mark Carney, speech, 25 October 2013).
In January 2012, the UK and the HKMA announced the establishment of a private sector-led Hong Kong-London Forum to promote closer collaboration between the two cities to support the wider international use of renminbi, which has made notable progress in enhancing market liquidity, payment and settlement arrangements and products and services. Singapore and UK have agreed in February 2014 to establish a private sector-led RMB forum to boost the development of the offshore Renminbi market and to focus on increasing co-operation between the Singapore and UK markets. See also http://www.mas.gov.sg/Singapore-Financial-Centre/Overview/Regional-Gateway-for-RMB.aspx and http://www.mas.gov.sg/News-and-Publications/Speeches-and-Monetary-Policy-Statements/2014/SINGAPORES-PERSPECTIVES-ON-RMB-INTERNATIONALISATION.aspx
Based on SWIFT press release on 28 April 2014, Singapore overtook London as the top RMB offshore clearing centre after Hong Kong. See: http://www.swift.com/assets/swift_com/documents/products_services/RMB_tracker_April2014_final_SDC.PDF
Based on SWIFT press release on 3 December 2013, Singapore was ranked first, outside of China and Hong Kong, in the use of RMB for trade finance as at October 2013. See: http://www.swift.com/assets/swift_com/documents/products_services/RMB_tracker_November2013.pdf
In Singapore, property-related companies dominate private corporate debt issuance, followed by government-related companies (airlines, telecom, transportation, banking). Comparable data for Hong Kong is not available.
Citigroup’s World Government Bond Index (WGBI), HSBC Asian Local Bond Index and JP Morgan WGBI.
Asian-Pacific markets were the major destination of investment, accounting for 70 percent of assets for Singapore and 80 percent of assets for Hong Kong.
MAS and HK OCI statistics
The full methodology is presented in appendix II.
Seade, Wei, and Wu (2010) also used a similar method to analyze the sources of IFCs’ growth in different financial service markets.
Whereas the gain in competitiveness played a key role for Hong KongSAR and Singapore in the post-crisis period, New York and London both lost competitiveness. New York benefited from a large increase in IPOs from emerging market economies in its region, including Brazil and Mexico.
While the “gateway-to-China” effect was the central driver behind Hong Kong’s SARKong’s growth, and to a lesser extent for Singapore, the relative growth in New York during the post-crisis period mainly reflected a sustained increase in competitiveness. London, on the other hand, benefited relatively more from the structural effect in part due to a large increase of issuances from some of the European countries considered as safe-havens, such as Switzerland and Sweden.
In contrast to the work of the 2012 UK Spillover Report, however, we use a stylized, hypothetical network rather than an actual network of bilateral data.
In our model, the shock generates a change in the network by cutting individual links. In practice, the network may change more broadly in response to the shock.
Since our hypothetical network is unweighted, all links that exist are assumed to be of equal size. In this figure, we do not weight the share of countries by the number of their total links.
The shock propagation curves are highly nonlinear because the network contains two distinct regions. For example, when a shock leaves Asia, reaches the global financial center, and jumps to the rest of the world it suddenly causes an impact in a large number of countries.
The actual network of BIS or CPIS exposures—e.g. as discussed in the recent IMF Board Paper on “Mandatory Financial Stability Assessments under the FSAP: Update”—is, of course, much richer with an abundance of exposures between countries. However, many of these exposures are small and would be a distraction to the focus of our exercise on the role of Hong Kong SAR and Singapore. Therefore, here we concentrate on a hypothetical network that abstracts from any links between the two countries and countries outside the region. In a stylized form, this represent the geographical differentiation discussed above.
This is consistent with other authors’ findings. For example, Hooley (2013) cautions that, as China integrates into the global financial network, the global financial system becomes more vulnerable to financial shocks originating in China.
See Appendix III.
For initiatives led by Hong Kong SAR, see HKMA, 2012 annual report. MAS co-chaired the BCBS Core Principles Group which delivered the revised Core Principles for Effective Banking Supervision in September 2012 and currently chairs the Macroprudential Supervision Group (MPG).
European Commission January 2014 proposal for a regulation of the European Parliament and of the Council “on structural measures improving the resilience of EU credit institutions.” Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 which created a new section 13 of the US Bank Holding Company Act of 1956. Section 4 of the Financial Services (Banking Reform) Act 2013 which inserts Part 9B (sections 142A – 142Z1) into the Financial Services and Markets Act 2000.
The HKMA and MAS participate in CMGs for G-SIBs that are sizeable in Hong Kong SAR and Singapore. HKMA participates in 9 CMGs while MAS participates in 7 CMGs.
See Aiyar, Calomiris and Wieladek (2012) for an illustration of leakages from macroprudential policy in the United Kingdom.
While requirements such as capital rules may not apply to branches, the latter are subject to other prudential requirements, including liquidity requirements, corporate governance requirements with respect to Management, and inspections by host authorities.
See appendix III
Measures are detailed in the Singapore FSSA, box 2 on “Supervision and resolution of foreign branches.”
We therefore do not consider the product structure effect and the mixed structure effect.
In the case of bonds, the data comprises several different types of debt securities including asset-backed and mortgage-backed securities, and corporate and sovereign bonds, but excludes short-term and money market instruments as well as issuances by international organizations.
The list of sample countries is as follows: (11 Asian countries) Hong Kong SAR, Singapore, China, Japan, India, Korea, Malaysia, Taiwan Province of China, Indonesia, Thailand, Philippines, (2 North American countries) United States, Canada, (12 European countries) United Kingdom, Germany, France, Italy, Spain, Netherlands, Switzerland, Sweden, Luxembourg, Ireland, Russia, Poland, (2 Latin American countries) Brazil, Mexico, (2 Middle-east countries) Saudi Arabia, United Arab Emirates, and South Africa and Australia.
Strictly speaking, an issuance by a country in an IFC in period t is labeled as “first time” if there was no issuance by the country in the IFC in period t-1, although it could be possible that there was an issuance in period t-2.
Typically, the physical distance between an issuer and an IFC tends to be strongly positively correlated with the volume of issuance (i.e. the closer the IFC from the issuer, the larger the issuance in the IFC). Given this tendency, a first-issuer issuance from a neighboring country is more likely to reflect an IFC’s its coincidental proximity than its own competitiveness, whereas one from a country far from the IFC is more likely an indication of the IFC’s competitiveness.
Dealogic provides issuance data by exchanges, which allows us to identify the specific location of issuance within a country. In most cases, however, including the U.S. and the U.K., almost the entire international issuances take place in the main financial center of a country.
For a detailed assessment, refer to the 2013 Singapore FSSA and 2014 Hong Kong SAR FSSA.
A BICRA analysis for a country covers the entire financial system of a country while considering the relationship of the banking industry to the financial system as a whole. A BICRA is scored on a scale from 1 to 10, ranging from the lowest-risk banking systems (group 1) to the highest-risk (group 10). The BICRA comprises two main areas of analysis—“economic risk” and “industry risk”.
While Hong Kong SAR follows the Basel’s implementation timetable of phasing in from January 2013, the capital levels maintained by banks in Hong Kong SAR in general have already satisfied and/or exceeded the Basel III minimum standards (e.g. CET1 > 4.5%, Tier 1 > 6%, Total capital > 8%).
Macro-prudential measures are detailed in the Hong Kong SAR and Singapore FSSAs.
The decision to exercise certain resolution tools is entrusted to a designated Minister (Minister-in-Charge) of MAS, who is accountable to the Parliament.