Beyond this substantial direct contribution to GDP, the financial sector plays a critical role in intermediating credit for the economy, and in providing other critical financial services to companies and depositors in Singapore. It is therefore important for the whole economy that the financial sector continues to function normally. Should financial institutions in Singapore become less competitive or credit  BIS Review 127/2008  1  become less readily available, it would hinder the financing of economic activities and raise the borrowing costs of businesses. This would aggravate the already challenging economic situation and thereby adversely affect our growth and jobs. Fourth, this financial crisis is not confined to any country or region, but is a global one. Singapore’s guarantee of deposits demonstrates our confidence in the soundness of our financial system, and helps contribute towards restoring confidence in the international financial system. Why the guarantee is sufficient and prudent The deposits of individuals and non-bank customers with banks, finance companies and merchant banks in Singapore amount to about $ billion. In view of MAS’ stringent regulations and close supervision of financial institutions in Singapore, their strong capital and asset positions, and the potential support that foreign institutions in Singapore can avail themselves of where necessary under the government guarantees provided by their home jurisdictions, MAS and the Ministry of Finance have assessed that the backing of $ billion of the Government’s reserves provided to the guarantee would be more than sufficient. Let me explain.

However, the announcement in the past week by a few jurisdictions in our region of blanket government guarantees on all bank deposits could potentially have a more direct impact on Singapore. Last Thursday the Singapore Government announced a guarantee on deposits of individuals and non-bank customers with banks, finance companies and merchant banks in Singapore until 31 December 2010. We have decided that such a guarantee is necessary for the following reasons. First, the guarantee ensures a level international playing field for banks in Singapore. The recent announcements in the region of blanket government guarantees on deposits set off a dynamic that puts pressure on other jurisdictions to respond or else risk disadvantaging and potentially weakening their own financial institutions and financial sectors. If Singapore had not introduced a similar guarantee, there was a real risk that depositors would have shifted some of their deposits out of Singapore banks, to banks in other jurisdictions which guarantee deposits. This would have weakened financial institutions here. The Government has therefore taken a precautionary step to pre-empt and avert any such possibility. Second, the guarantee bolsters the confidence that the public has in Singapore’s financial system. It provides certainty to Singaporeans during such challenging and uncertain times in the international environment, notwithstanding that in Singapore our institutions are fundamentally sound. Third, financial services are an important pillar of Singapore’s economy, accounting for 12% of GDP and 5% of Singapore's employment.