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Prepared by Jeanne Gobat (x34413), who is available to answer any questions on this paper.
Funding cost may be affected by factors such as domestic regulations, taxation and efficiency of payments and settlement systems. If these are more onerous in one center versus another, then the cost of funds will be higher as well.
However, history also shows that centers can rise and fall in importance in part because of changes to the political systems or other factors. Until the mid 1960s, Beirut was a leading banking center for the region spanning from the Middle East to Asia. Further, Shanghai was thought to have the most developed financial center during the interwar period between 1910–39.
For a detailed description of Singapore’s development as a financial center, see Bryant (1985 and 1989).
By the mid–1960s, roughly two–thirds of the 34 licensed banks operating in Singapore were foreign owned. Other financial institutions such as finance companies and insurance firms existed, although on a more modest scale. The Post Office Savings Bank, originally established in the 19th century to promote savings by low–income individuals, operated roughly 39 branches and counters by end–1965. The Central Provident Fund was formed in 1955 as a compulsory savings scheme to provide retirement benefits for workers
Singapore gained full internal self–government in 1959 from the British government, although the British retained control over defense and foreign affairs. In 1963, Singapore joined together with Malaya, Sabah (North Borneo), and Sarawak to form the Federation of Malaysia.
Agriculture, fishing and quarrying accounted for less than 4 percent of GDP. Singapore’s land area is very small. Its total land has grown somewhat through the government’s efforts to reclaim land. Yet, to put its size in perspective. Luxembourg has a land area four times that of Singapore but a population only one sixth as large. London is 2½ times larger than Singapore and its population three times as large (Bryant, 1985).
By the mid 1970s, a bank cartel system of exchange–rate quotations was abolished and the Singapore dollar was floated; credit guidelines were lifted and the interest rate setting cartel dismantled. (Bercuson, 1995).
Asian currency market and Asian Dollar Market are used interchangeably.
The Euromarket offered attractive deposit rates because it had no reserve requirements, deposit insurance premiums or interest–rate ceilings (regulation Q); its lower lending rates reflected the absence of entry restrictions and cartel–like structures that characterized United States banking. (Sarver, 1988).
For fuller discussion on the development and role of international offshore financial centers, see Cassard (1994).
For a detailed account of the development of the Asian currency market in the 1970s, see Hudjera (1978).
Currently more than 5,000 multinational corporations have made Singapore their regional headquarters for treasury and financing operations.
For the purpose of this policy, Singapore residents are defined as: (i) Singapore citizens; (ii) individuals who are Singapore tax residents and (iii) companies incorporated in Singapore or overseas which are jointly owned or majority owned by Singapore citizens.
The authorities introduced a three–tier banking system in the early 1970s. Established local and foreign commercial banks received a full banking license, allowing the full range of domestic and offshore activities, while new foreign entrants could only obtain a restricted or an offshore license. No restrictions on offshore activities were imposed. Restrictions on domestic retail banking varied with offshore license having their activities severely curtailed.
Most of the information in this section was drawn from “Institutional Investors in the New Financial Landscape," OECD (1998) and various IMF Capital Markets Reports (1997–99).
See Annex V, International Capital Markets, IMF 1998.
In the United States, bank deposits as a share of total financial assets of the household sector has fallen to 59 percent in 1995 from 63 percent in 1980. By contrast, in Japan the ratio rose to 65 percent in 1995 from 55 percent in 1980.
For further information on the reforms aimed at changing the regulatory and supervisory framework and improving bank disclosure practices, see SM/99/53.
The government launched in September 1998 its first 5Y bond issue, followed in October 1998 with a 7Y bond issue, and a 10Y bond last year. As a result, the government has now a regular pre–announced issuance schedule of 91 and 364 day t–bills and 2,5, 7 and 10Y bonds
On-the-run issues are the most recently issued securities of a given maturity class. On-the-run issues turn into off-the-run when a new security of the same maturity class is issued.
Outside of Tokyo, Hong Kong SAR is the leading center for asset management in the region.
In selecting Singapore-based fund managers, GIC requires the fulfillment of four sets of criteria: (i) a minimum 3–year track record; (ii) the investment team in Singapore should comprise at least three fund managers who also have to meet minimum standards of qualifications and experience; (iii) the size of funds under management should be at least S$500 million in Singapore or S$5 billion at the group level; and (iv) the fund management firm is required to commit resources to training.
For a full discussion on developments in sound practices for managing bank liquidity and trends in supervisory practices, see BIS (February 2000).
Commonly, all financial assets are measured at fair value. There are exceptions to this rule, however. Amortization cost can be applied to securities such as bonds that are held to maturitiy.
For more on repos see MAE OP/97/3 and BIS (1999)
This means that financial institutions can borrow Singapore dollars through a repo transaction but have to first buy a Singapore dollar asset.
The Singapore Bond Market, Deutsche Bank, August 1999.
Recent empirical evidence indicates that size may matter and can lower the cost of capital Hardouvelis et al. (1999) find that the average saving in the cost of capital from market integration in Europe for the period between 1992 and 1998 amounted to around 200 basis points. Stulz (1999) also finds that financial integration encouraged by globalization has lowered cost of capital.