MAS looking into the way Sibor is set

[Musicwhiz]

More good news for those looking to refinance their housing loans. More bad news for those who are already "enjoying" paltry and miserly rates on their savings accounts.....

Business Times - 16 Oct 2010

Sibor slides further, almost hugs the floor

Prospect of faster Sing-dollar gains puts pressure on interest rates

By conRAD TAN

INTERBANK rates here fell by the most in nearly six months yesterday, putting pressure on banks' lending margins, after the Monetary Authority of Singapore's (MAS) surprise move on Thursday to allow faster gains in the Singapore dollar.

The three-month interbank offered rate for Sing-dollar loans, or Sibor, fell to a new low of 0.47014 per cent yesterday, from 0.49667 per cent on Thursday - the biggest one-day drop since April 26.

The one-month Sibor, which had stayed at 0.37500 per cent since April 20, fell to 0.34792 per cent yesterday. The interbank rates for six-month and one-year Sing-dollar loans also fell - by the most since January last year - to 0.59375 per cent and 0.80556 per cent, respectively, Bloomberg data shows.

On Thursday, MAS widened and steepened the trading band for the Sing dollar, making room for further gains to fight inflation.

Its actions sent the currency soaring to a record high against the US dollar, but also put immediate pressure on interest rates here, forcing them down. Investors accept lower interest on Sing-dollar assets if they expect more gains from currency appreciation.

'By fuelling expectations for faster Sing-dollar appreciation, the slope steepening drives short-term Sing-dollar interest rates lower,' Citigroup economist Kit Wei Zheng said in a report yesterday.

The lower rates will make it even harder for banks here to boost their net interest income from lending - their biggest source of revenue.

Meanwhile, savers who are already earning almost nothing on their deposits could soon earn even less. Yesterday, DBS Group cut the interest that it pays on the first $100,000 in POSB savings accounts to just 0.1 per cent. Previously, it paid 0.125 per cent for the first $50,000 and 0.25 per cent for the next $50,000.

Near-zero interest rates and poor growth prospects in the United States and Europe are prompting investors to seek higher yields elsewhere, and some analysts have warned that the prospect of faster Sing-dollar gains could attract even more money into Singapore, pushing up the prices of property and other assets. Yesterday, the Sing dollar gave up some of Thursday's gains to trade at around 1.2950-1.2980 against the US dollar. At 7pm, one US dollar bought 1.2965 Sing dollars, compared to 1.2955 a day earlier.

But the US dollar continued to slide against other major currencies, after the MAS move on Thursday spurred widespread buying of Asian currencies in anticipation of further gains.

Traders were also awaiting a speech by US Federal Reserve chairman Ben Bernanke yesterday, looking for clues about how much money the central bank plans to pump into the economy through asset purchases. The US Treasury was also expected to deliver a twice-yearly report on China's currency policy that could stoke tensions between the two governments.

At 7pm, the dollar index, which measures the strength of the US dollar against six major world currencies, was down 0.2 per cent at 76.516 - extending its fall this week to one per cent. The index has dropped 4.9 per cent since Sept 21, when the Federal Reserve signalled that it could resume purchases of US government bonds and other securities to support the economic recovery.

The war of words over currency policies continued yesterday: China hit back at Japan's Finance Minister Yoshihiko Noda, who had earlier this week criticised both China and South Korea for keeping their currencies weak, making their exports relatively cheaper than Japan's.

The yen has been trading near its highest level in 15 years against the US dollar, prompting Mr Noda to repeat yesterday that the government would intervene again to weaken the yen if necessary, after doing so last month.

[Musicwhiz]

For full article, please visit the website.

The Straits Times
www.straitstimes.com
Published on Jul 19, 2012
MAS looking into the way Sibor is set
Move echoes that of other regulators around the world following Libor scandal

By Magdalen Ng

THE way the local interest rate benchmark is set is being assessed by the authorities in the light of the Libor scandal engulfing British bank Barclays.

The Monetary Authority of Singapore (MAS) said yesterday that the move follows similar steps being undertaken by regulators around the world. A spokesman said: 'Regulators in several international financial centres are looking into the setting of key market interest rate benchmarks by banks. MAS is doing the same in Singapore.'

The process of how banks help set the rate has come under intense scrutiny in recent weeks following the scandal surrounding the Libor or London interbank offered rate.

Barclays and possibly other banks rigged the rate in the years after the financial crisis hit in 2007, potentially distorting a key financial instrument that affects millions of people and trillions of dollars worth of loans.

Barclays was fined a record £290 million (S$571 million) last month.

The method used to set the Libor in Britain is similar to the one used for the Sibor or Singapore interbank offered rate. Each day, contributing banks submit rates at which they think they can borrow from other banks. Financial news service Thomson Reuters collates the information, removes the top and bottom 25 per cent, then averages the rest to derive the day's Sibor.

The process is overseen by the Association of Banks in Singapore (ABS).

ABS director Ong-Ang Ai Boon said yesterday by e-mail: 'The ABS conducted a review on the way Sibor is set last year. The governance and processes are in place and the process is reasonably robust and circumspect.

'Nevertheless, we will continue to be diligent and vigilant to ensure compliance with the governance and procedures.'

One concern surrounding Sibor is that the number of banks taking part in the rate-setting process has fallen recently from 15 to 12. Royal Bank of Scotland has pulled out, while the Bank of America did not contribute to the rate panel on Monday.
----------

[arthur]

The method used to set the Libor in Britain is similar to the one used for the Sibor or Singapore interbank offered rate. Each day, contributing banks submit rates at which they think they can borrow from other banks. Financial news service Thomson Reuters collates the information, removes the top and bottom 25 per cent, then averages the rest to derive the day's Sibor.

ABS director Ong-Ang Ai Boon said yesterday by e-mail: 'The ABS conducted a review on the way Sibor is set last year. The governance and processes are in place and the process is reasonably robust and circumspect.

The above two paragraphs do not fit each other.

If Sibor is to follow Libor in its regulatory process and Libor's has been found wanting, what does that makes of Sibor?

Unless MAS has extra layers of regulations which it deemed too sensitive to divulge, otherwise Sibor is fully capable of being manipulated by the banks as well.

An analogy: You got a crappy engine in Car A. Now you design the same engine and fix it into Car B. Unless the engine has been reviewed and tweaked, else we can make a safe hypothesis Car B would be as crappy as Car A, even if it comes with Nox and turbocharged capability with brembo brakes.

[wsreader]

My understanding is that, in order to boost investors' confidence during the 2008 financial crisis, Barclays and possibly other banks, had reported lower estimates of what it actually costed for them to borrow money. So at a time when financial risk was heightened, Libor did not tick upwards. This led to cost saving for many borrowers whose loan was tied to Libor, possibly one of the rare instance where a financial scandal has actually benefited many people.

[freedom]

it benefited the banks, indirectly benefited other people. it never was the intention to save the people.

[Blackjack]

Not necessarily so I think. The methodology used for both Libor and Sibor may be similar but the statistical underpinnings of the contributions may be different. This was not exactly spelt out in the article. In restrospect, it seems that much of the rigging was allowed to take place simply because the individual submissions were not verified to be correct by BBA. ABS plays the same role here though the mechanism behind the actual process is not clear.

In fact it's reported that CME has called for stronger safeguards to the Libor fixing process as early as 2008, in response to complaints from traders. This was turned down by BBA on fears that it might send wrong signals to the market, but unfortunately, whether it was brought to regulators' attention was not clear.

I'll probably use a slightly different analogy from Arthur. Car A uses an engine that was designed to work but the engineer was entrusted with procurement, manufacturing, and QC altogether. Over time, the engineer decided to deviate from the specifications and go for discounted items of slightly different dimensions, then passing himself anyway. Car B uses the same engine but decides to segregate the roles of procurement, manufacturing and QC, such that there is greater oversight on the process flow.

[flinger]

Not necessarily so I think. The methodology used for both Libor and Sibor may be similar but the statistical underpinnings of the contributions may be different. This was not exactly spelt out in the article. In restrospect, it seems that much of the rigging was allowed to take place simply because the individual submissions were not verified to be correct by BBA. ABS plays the same role here though the mechanism behind the actual process is not clear.

In fact it's reported that CME has called for stronger safeguards to the Libor fixing process as early as 2008, in response to complaints from traders. This was turned down by BBA on fears that it might send wrong signals to the market, but unfortunately, whether it was brought to regulators' attention was not clear.

I'll probably use a slightly different analogy from Arthur. Car A uses an engine that was designed to work but the engineer was entrusted with procurement, manufacturing, and QC altogether. Over time, the engineer decided to deviate from the specifications and go for discounted items of slightly different dimensions, then passing himself anyway. Car B uses the same engine but decides to segregate the roles of procurement, manufacturing and QC, such that there is greater oversight on the process flow.

That is true. However, because that portion is so customizable, it opens itself for abuse unless there is stringent safeguards put it place. However that would mean regulation correct? I thought most of the time regulation is shunned at ?

[yeokiwi]

My understanding is that, in order to boost investors' confidence during the 2008 financial crisis, Barclays and possibly other banks, had reported lower estimates of what it actually costed for them to borrow money. So at a time when financial risk was heightened, Libor did not tick upwards. This led to cost saving for many borrowers whose loan was tied to Libor, possibly one of the rare instance where a financial scandal has actually benefited many people.

Ya.. but the savers were being penalised. They are likely to receive a lower interest rate on their deposits.
So, in order to hedge against banks' malpractices, we should save a lot and borrow to the max for mortgage loans.haha.

[Blackjack]

That is true. However, because that portion is so customizable, it opens itself for abuse unless there is stringent safeguards put it place. However that would mean regulation correct? I thought most of the time regulation is shunned at ?

By regulation I would take it that you are referring to MAS. ABS being made up of member banks primarily represents the interests of the banking community in Singapore, but is not a regulator. This is akin to the relationship between FSA and BBA for instance.

MAS typically spells out rules to the financial industry via instruments like Acts, Legislations and Circulars for instance. There are also guidelines which are more to align to best practices and not legally enforceable. I think you are partially correct to say that regulation is avoided in cases where it might hinder business functions yet provide no direct measurable benefit. The official stance is always made to avoid an overbearing regulatory environment that is too stifling for the financial industry. The balance is however something that is contentious and will always invite alternative views.

[flinger]

That is true. However, because that portion is so customizable, it opens itself for abuse unless there is stringent safeguards put it place. However that would mean regulation correct? I thought most of the time regulation is shunned at ?

By regulation I would take it that you are referring to MAS. ABS being made up of member banks primarily represents the interests of the banking community in Singapore, but is not a regulator. This is akin to the relationship between FSA and BBA for instance.

MAS typically spells out rules to the financial industry via instruments like Acts, Legislations and Circulars for instance. There are also guidelines which are more to align to best practices and not legally enforceable. I think you are partially correct to say that regulation is avoided in cases where it might hinder business functions yet provide no direct measurable benefit. The official stance is always made to avoid an overbearing regulatory environment that is too stifling for the financial industry. The balance is however something that is contentious and will always invite alternative views.

Yes, I was talking about regulation by MAS. Its avoided because its adds more cost to the business and often "prevents" creativity within the industry and banks don't liked to be controlled.

In regards to benefits, regulation rarely benefits banks although it often benefits the end user, but because we are pro-business we might be not be so into regulation that inhibits business progress.

With that then, where is the safe-guard if the banks and its associations are left to self - regulate? and thus the risks to the end users.