One of the sections in MAS 610 where the granularity of reporting has been substantially increased in the newly proposed guidelines, is the section to report Interbank Exposures.
In the years following the Global Financial Crisis (GFC), Interbank exposures have attracted the attention of regulators, as these exposures became shock transmission channels for spreading the financial crisis around the globe. Since then, Central Banks and Monetary Authorities around the world have introduced new restrictions or limits on interbank exposures.
The impact of measures taken by Monetary Authority of Singapore (MAS) to reduce the risk of an interbank contagion is quite evident. The interbank loans sanctioned by Commercial Banks in Singapore as a percentage of total loans was as high as 53.8% at the end of Q4 2009, but this has consistently remained between 36% and 38% since Q4 2014. But there has also been a tectonic shift in the cross-border interbank lending in Singapore. At the end of Q4 2009, 42.2% of interbank loans were concentrated in Europe and 29.5% and 20.6% of interbank loans were concentrated in Emerging Asia and Developed Asia respectively. But at the end of Q3 2017, only 19.5% of interbank loans was concentrated in Europe and 45.9% and 22.4% of interbank loans were concentrated in Emerging Asia and Developed Asia respectively.
These changing dynamics may have influenced MAS’ decision to increase the granularity of reporting for interbank exposures in the newly proposed MAS 610.
An overview of how the interbank exposure reporting is changing in MAS 610
In the current version of MAS 610, Banks report interbank exposures under Annexures C and E in Appendix 1. Banks are required to report only the overall exposures by counterparty name and by counterparty country. The newly proposed revisions will change the reporting of interbank exposures in the following ways:
1. Increases granularity
Banks will have to report the breakdown of assets (amounts due from banks) into Cash and balances, Amount receivable under reverse repurchase agreements, Positive fair values for financial derivatives, Positive fair values for financial derivatives traded over the counter, Negotiable Certificates of Deposits held, Debt Securities, Loans and Advances, Trade Financing Loans, Bills discounted or purchased, Equity investments, Cash and Collaterals paid, and other assets. Similarly, Banks will have to report the breakdown of liabilities (amounts due to banks) into Deposits, Amount payable under repurchase agreements, Negative fair values for financial derivatives, Negative fair values for financial derivatives traded over the counter, Bills payable, Negotiable Certificates of Deposits issued, Debt securities issued, and other liabilities.
2. Adds reporting of off-balance sheet items
Both contingent items such as Guarantees, Letters of Credit, Acceptances, Unfunded risk participations etc. and commitments to lend or underwrite which aren’t being reported at present will have to be reported by counterparty name, counterparty group and counterparty country.
3. Groups exposures to related banking entities
Banks will have to group and report their exposures to all banking entities which are related to each other. However, this grouping is required only for foreign operations – Banking entities incorporated & operating outside Singapore and Foreign branches of banking entities incorporated in Singapore.
4. Separates reporting of exposures to related and unrelated banking entities
Banks will have to report the breakdown of their interbank exposures into exposures to related and unrelated banks.
Key Challenges arising because of the proposed revisions:
1. Aggregating exposures across source systems by Counterparty Names
For reporting their exposures to specified asset and liability instruments by counterparty names, banks should be able to link all exposures to any single counterparty taken from multiple source system extracts. Banks which do not have a unifying data platform for regulatory reporting will face difficulties in linking the exposures from multiple source systems.
2. Performing reconciliation for each asset and liability class
Increase in the granularity of reporting also increases reconciliation efforts for the reporting bank. Interbank exposures for each asset and liability class to be reported under Appendix C must reconcile with exposures by counterparty type and counterparty country to be reported under other appendices.
Though we addressed the challenges in reporting, only the interbank exposures under the revised MAS 610 guidelines, the challenges of reporting other exposures are similar in nature. The most notable change across reports is the increase in the granularity of reporting and hence the challenges discussed here are equally relevant for all of them. As MAS is expected to finalise the MAS 610 guidelines by the end of Q1’18 and member banks to get only 24 months to complete their implementation, now is the right time to invest in a sophisticated regulatory reporting platform that addresses current as well as future reporting requirements.