Changes in Financial Market Regulations from Pre-Crisis to Post-Crisis Period in Singapore

The Global Financial Crisis (GFC) was the greatest shock to the world financial system since the Great Depression eight decades earlier, and although it created problems globally, the main effects were felt in the financial markets of the USA and Europe. It has resulted in a plethora of studies examining its causes, and while there is general agreement on a list of contributing factors, there is less agreement on which of these were most important and the consequent implications for desirable or needed regulatory changes. Singapore has weathered the Asian financial crisis better than most Asian economies. Although Singapore has weathered the crisis better than many Asian nations, its close integration with the regional economies means that it could not walk away completely unscathed. This paper examines the roots of Singapore’s resilience and assesses Singapore’s policy responses to the crisis. It argues that Singapore has used the exchange rate and wage instruments effectively during the crisis. Despite the crisis, Singapore has pressed ahead with financial reforms including liberalising the Singapore dollar,to ensure the long-term competitiveness of its economy. The regulatory responses being driven internationally, and applied individually, by nations with highly developed financial systems involve a movement away from minimalist regulation and reliance on “light touch supervision” and market discipline, towards a more interventionist approach which many emerging markets tended to favor. Examples can be seen in a willingness to consider capital controls as part of macro-prudential policy and new requirements for minimum holdings of liquid assets by banks. A dilemma for policy makers in designing an optimal regulatory structure lies in the deficiencies of theory and empirical evidence relating to the stability and operations of financial markets. Many developed countries took unprecedented extreme measures because the potential damage to their financial systems was immense. A combination of high leverage and poor asset quality put the entire financial system on the brink of collapse. In terms of the regulatory response, the Monetary Authority of Singapore (Monetary Authority of Singapore) recognized the importance of adapting to accommodate external conditions. Therefore, this project firstly gives the background of the financial crisis and then goes on to explain the impact it has had on the global economy with special focus on the economy of Singapore. It also illustrates the steps undertaken to mitigate the crisis and also lays down the regulatory reforms bought about post the financial crisis in Singapore.