Major banks to hold loss-absorbing funds under new financial law

Local banks would need buffers equal to 14% of risk-weighted assets.

Singapore plans to require major banks whose failure could threaten the financial system to maintain funds that can absorb losses, reducing the risk of taxpayer-funded rescues.

The Financial Services and Markets (Amendment) Bill 2026 allows the Monetary Authority of Singapore (MAS) to set minimum reserves that major financial institutions must hold to absorb losses if they run into financial trouble.

“MAS’s bail-in powers under the [bill] give it the authority to write down or convert those instruments when a bank reaches the point of nonviability,” Elaine Chan, co-head of financial services regulatory practice at WongPartnership LLP, said in an emailed reply to questions.

Local banks would need to maintain loss-absorbing resources equal to 14% of risk-weighted assets, whilst foreign banks in global banking groups deemed systemically important would face an 18% threshold.

Eligible instruments include regulatory capital and senior debt sold to external investors.

Benjamin Liew, a partner at Rajah & Tann Singapore LLP, traced the reform to the 2007–2008 global financial crisis. The failures of several US lenders in 2023 reinforced the case for ensuring banks could absorb losses without relying on public funds, he said.

Chan said the rules would address a gap in the Financial Services and Markets Act 2022, which did not empower Singapore’s central bank to require banks to set aside resources in advance to absorb losses.

Under the proposed system, eligible instruments could be written down or converted into shares according to the order in which creditors are repaid when a bank is failing.

This ensures banks have sufficient resources to absorb losses, whilst existing powers let the central bank write down or convert those instruments, Chan said.

MAS is proposing to give banks five years from notification to comply, primarily by issuing eligible debt.

Chan said banks should pace their issuance to avoid a rush that could increase funding costs.

Liew said affected banks should begin preparing to issue eligible instruments and meet reporting and disclosure requirements.

Banks should also check whether their existing capital instruments meet the proposed requirements, Chan said.