Tutorial 2

Question 1 a) Past / Current Banking Innovations - ATMs – easy to withdraw money and deposit money in some cases - Electronic banking – internet, phone banking - NETS – cashless shopping b) Current / Future Innovations - Internet banking? NO need to visit branch at all? - Linking bank accounts to say, stock broking firms and retailers or pay via credit card? c) Benefits and Issues - Mainly convenience or speed - Security features? Loss of privacy? Question 2 a) Major Changes due to Liberalization Granting QFBs enhanced privileges in setting up branches and offsite ATMs - QFB privileges (i.e. licenses) where awarded to 6 foreign banks - QFB privileges gradually widened  Up to 25 branches of offsite ATMs  Greater convenience for their customers and thus make it easier to attract customers  Pose greater competition to local banks – their numerical advantage in the ATM network is diminished 

Start negotiating with local banks to let their credit card holders obtain cash advances through the local banks ATM networks  Convenience for their card holder and thus makes their card more attractive to Singapore customers  Pose greater competition to other banks (local or foreign bank’s card business)  For Visa and MasterCard, it may translate into more cardholders

Question – will local bank be willing? Benefit to local bank – charge QFBs for using their ATMs (new revenue source) -

Removing the 40% foreign shareholding limit on local banks

MAS’ objective – bring about greater competition, more choice for customers, lower cost, enhance Singapore’s status as an IFC In April 2005, 5 QFBs (ABN Amro, CitiBank, HSBC, Maybank and Standard Chartered Bank) launch a newly formed shared ATM network (atm5 network) that allows their customers to have access to the combined network over 1450 machines island-wide

b) Impact on Local Banks - No significant erosion in their market share – local banks’ market share of resident nonbank deposits has dipped only a few percentage points to slightly below 60% from five years ago - Local and foreign banks target different segments – QFBs typically target the mid-toupper income groups while the local banks are more grassroots-focused, with some level of social responsibility - Widening their earnings base and increasing their fee income - Local banks have been looking to grow overseas Additional notes Only two major hurdles left for the market to be fully opened - Allow full branch banking by QFBs - Permitting them as many ATM as they want According to the analyst, local banks are more affected by market dynamics than the above Question 3 a) Money Creation Process

Money Created

= (1/r) * R = 1/0.21 x 2,000,000 = 9,523,809 (7,523,808 in loans & 2,000,000 in reserves)

b) Reasons - Leakage (i.e. money falling outside of the banking systems e.g. money kept in a piggy bank at home) result in a lower amount created - Also, where banks are not able to lend out and hold excess cash with the MAS