Singapore MAS on Banks Tier 1 Capital: Intends to Follow Hierarchy of Claims in Liquidation Event, Shareholders Will Absorb Losses before Holders of Additional Tier 1 & Tier 2 Capital

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Singapore MAS on Banks Tier 1 Capital: Intends to Follow Hierarchy of Claims in Liquidation Event, Shareholders Will Absorb Losses before Holders of Additional Tier 1 & Tier 2 Capital

23rd March 2023 | Singapore

Singapore central bank Monetary Authority of Singapore (MAS) has issued a statement on the hierarchy of claims in liquidation event for Banks Tier 1 Capital – Intends to follow hierarchy of claims in liquidation event, shareholders will absorb losses before holders of additional Tier 1 & Tier 2 Capital.  Singapore MAS: “In exercising its powers to resolve a financial institution (FI), it intends to abide by the hierarchy of claims in liquidation. This means that equity holders will absorb losses before holders of Additional Tier 1 (AT1) and Tier 2 capital instruments.  Creditors who receive less in a resolution compared to what they would have received had the FI been liquidated would be able to claim the difference from a resolution fund that would be funded by the financial industry … … AT1 bonds in Singapore are offered in the wholesale market, which is only for institutional investors, accredited investors, or transactions in denominations of at least S$200,000. No prospectus for the offering of AT1 bonds to retail investors has been registered with MAS.”  Read: Credit Suisse $17.2 Billion Tier 1 Capital Notes to be Fully Written Off to Zero, Bondholders with 100% Capital Loss See below for full statement:

“ Intends to Follow Hierarchy of Claims in Liquidation Event, Shareholders Will Absorb Losses before Holders of Additional Tier 1 & Tier 2 Capital “

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Singapore MAS on Banks Tier 1 Capital

22nd March 2023 – The Monetary Authority of Singapore (MAS) said today that in exercising its powers to resolve a financial institution (FI), it intends to abide by the hierarchy of claims in liquidation. This means that equity holders will absorb losses before holders of Additional Tier 1 (AT1) and Tier 2 capital instruments.

Creditors who receive less in a resolution compared to what they would have received had the FI been liquidated would be able to claim the difference from a resolution fund that would be funded by the financial industry.

The creditor compensation framework will also apply in the exceptional situation where MAS departs from the creditor hierarchy in order to contain the potential systemic impact of the FI’s failure or to maximise the value of the FI for the benefit of all creditors as a whole.

MAS’ resolution framework is in line with the Financial Stability Board’s Key Attributes of Effective Resolution Regimes for Financial Institutions.

AT1 bonds in Singapore are offered in the wholesale market, which is only for institutional investors, accredited investors, or transactions in denominations of at least S$200,000. No prospectus for the offering of AT1 bonds to retail investors has been registered with MAS.

As with other investment products, FIs that offer or distribute AT1 bonds are expected to make accurate and clear disclosures of key product features and risks to investors. Investors should understand the risks and rewards, and exercise due care in their selection of investment products.

Institutional investors are those listed under section 4A(1)(c) of the Securities and Futures Act 2001 (SFA). These are generally entities or organisations that deal in financial products in the ordinary course of their business, including regulated financial institutions, government bodies and international organisations.

Accredited investors are individuals or corporates that meet the asset or income criteria in section 4A(1)(a) of the SFA, and have opted in with the financial institution to be treated as an accredited investor.

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