TOPIC 2: Efficiency of national supervision model in promoting economic growth

( May use the real-world examples for illustration)

Ques1: What are the main national supervision models? Analyze how do supervisory pratices
contribute to economic growth
The term "national supervision models" defines the structures used by various
countries while regulating and supervising financial systems, especially
organizations like banks, securities, and insurance companies. They are organized
to reduce systemic risks that might impact the economy negatively while
safeguarding consumers in favor of financial stability.

Models of national financial supervision are crucial for economic development in

that they protect the efficiency, integrity, and stability of the financial institutions.
There are a number of important models, and they all employ various ways of
regulating the markets as well as the financial institutions. This means that, by the
institutional model, financial supervision is organized according to the form of
organization. These include security firms, banks, and insurance organizations.
Taking the United States as an example, it is clear that the SEC regulates the
securities markets while the Federal Reserve regulates the banks. Another merit of
this framework is that it extends the benefit to regulators through its facilitation of
specialized regulation by concentrating their regulatory resources on specific risks
and responsibilities different sectors of the financial industry are exposed
to.monitoring. The shortcoming with the institutional model is the likely inefficiency;
regulatory deficiencies because of redundant or fragmented jurisdictions among
regulators may compromise efficient monitoring.
The functional model, on the other hand, supervises financial operations according
to their purpose, independent of the kind of organization. For instance, a single
body regulates all securities-related operations, whether banks, investment
companies, or other organizations conduct them. By promoting consistency and
standardization among financial products, this strategy enables institutions to
develop and diversify their offerings while maintaining a clear regulatory
framework. But the model may be inefficient, as with financial institutions engaging
in so many activities, it may make them cumbersome entities, hence difficult to
monitor accordingly.
The integrated model, also referred to as the unified supervision model, has one
regulatory authority oversee financial sectors, including banking, insurance, and
securities. The centralization of such regulators provides an overview of the
financial system itself and reduces the prospect of regulatory arbitrage, whereby
organizations may seek to exploit the differences between the different regulatory
regimes. The UK used the above arrangement via the Financial Services Authority,
and later adopted a different regulatory structure following the 2008 financial crisis.
While the integrated approach allows for far-reaching monitoring, such a model
may be over-concentrating on the regulatory authority that can reduce the
flexibility that might be needed to deal with problems particular to a specific sector.
The other important approach is the twin peaks model, which splits financial
supervision into financial controlling and behavior supervision. Conduct regulators
therefore target protection for the consumers and the integrity of markets,
whereas the prudential regulators focus on institution viability. The concept
balances market fairness and the soundness of institutions in the regulation of
finance and has been adopted by countries including the Netherlands and
Australia. The twin peaks approach means that one solution whereby effective
conduct regulation fosters consumer confidence works in tandem with mitigation
of systemic risk. No arguments, but just sound monitoring by the two regulatory
agencies complementing each other will see to it that the twin peaks approach
works well.
This is where different supervisory techniques, with the help of maintaining stability
and efficiency in financial firms, might contribute towards economic efficiency. In
that case, the central banks or financial supervisors take part in monitoring the
firms' capital sufficiency, their way of managing liquidity, and reducing bankruptcy
risks.Supervisors oversee banks and other lending institutions with a view to
ensuring that the allocation of credit is fitting, optimizing the balance between the
demands of lenders and borrowers. This would, in turn, enable appropriate capital
allocation to the key sectors of infrastructure, technology, and business growth that
would allow economic progress in the long term. Good oversight reduces the risk of
financial crises by requiring prudent underwriting standards and discouraging
reckless behavior that may threaten stability.
Furthermore, supervisory regulations promote innovation and competition in
financial markets. Anti-monopolistic standards and a level playing field are
guaranteed by regulators to ensure that financial companies innovate and provide
better services. This competitive market reduces the costs of transactions for firms
and consumers to gain access to financial services. Disclosure requirements and
reporting standards required by supervisory organizations also support
transparency and decrease information asymmetry, boosting investor confidence.
The possibility of success in such industries attracts domestic as well as foreign
investment, which in turn enhances economic growth by providing long-term funds
and development in corporations. Supervisory techniques help to offer a stable and
dynamic economic environment.

Q2: What are the main indicators that can be used to measure the efficiency of a national
supervision model?
Singapore's robust national supervision model, particularly in the financial sector, has been
instrumental in driving its sustained economic growth. Here's a breakdown of how this model
has influenced key economic indicators:
1. GDP Growth

● Stability and Sustainability: The effective supervision model has created a stable and
reliable business environment, attracting both domestic and foreign investments. This
has resulted in consistent and sustainable GDP growth.
● Adaptability: Singapore's ability to quickly adapt to global market fluctuations and timely
policy adjustments has helped the nation weather multiple economic crises and maintain
growth momentum.
● Innovation and Entrepreneurship: The supervision model encourages innovation and
entrepreneurship, fostering a conducive environment for startups and businesses to
thrive, contributing to knowledge-based economic growth.
For example: Multinational corporations like Google choose Singapore for its stable business
environment, which is a direct result of effective supervision. This attracts significant foreign
direct investment, boosting GDP.
2. Unemployment Rate

● Low and Stable: Singapore boasts a consistently low unemployment rate, thanks to
flexible labor policies, high-quality human capital development, and a favorable business
climate.
● Labor Transition: The supervision model has facilitated the transition of labor from
traditional industries to modern and high-value-added sectors, mitigating unemployment.
For example: During the COVID-19 pandemic, Singapore's robust monitoring system allowed
the government to quickly implement targeted support programs, mitigating job losses and
ensuring a swift economic recovery.
3. Foreign Direct Investment (FDI)
 ● Strong Attraction: Singapore is a top destination for FDI worldwide. The effective
supervision model, modern infrastructure, attractive tax policies, and a skilled workforce
have been key drawcards for foreign investors.
● Economic Diversification: FDI has contributed to the diversification of Singapore's
economy, reducing risks and enhancing its competitiveness.
For example: Singapore's reputation as a global financial hub is largely due to its strong
regulatory framework. This attracts banks and financial institutions, leading to increased FDI
and economic diversification.

The Ease of Doing Business Index (EBDI) measures the business environment in a
country or region, particularly concerning small and medium-sized enterprises.
Developed by the World Bank, this index offers a framework for comparing the ease of
conducting business across different countries. It assesses various factors, including
the establishment and operation of businesses, legal considerations, and infrastructure
quality. A country's EBDI score reflects its business environment, with higher scores
indicating more straightforward and transparent operations and fewer bureaucratic
hurdles. For instance, Singapore consistently ranks at the top of the EBDI, recognized
globally for its favorable business conditions. Prior to the discontinuation of the index in
2021, World Bank reports highlighted Singapore's strong position, attributed to its
effective governance, advanced infrastructure, and robust support for businesses.
Moreover, the nation boasts a modern seaport and airport, solidifying its role as a key
hub for international trade.
Comparative advantage in trade helps identify a country's strengths in specific fields of
production or types of goods, offering insight into its level of economic development.
However, to gain a comprehensive understanding of the economic, cultural, social, and
political dimensions, as well as the influence of both macro- and microeconomic factors
and natural advantages on each country's competitive capacity, relying solely on
comparative advantage is insufficient. In this context, the Global Competitiveness Index
(GCI) was established, providing a thorough assessment of the various factors affecting
a country's competitiveness at any given time. The GCI empowers countries to
determine their international standing, highlighting their strengths and weaknesses in
relation to others, and helping to inform policies and propose solutions aimed at
enhancing competitiveness. Developed by the World Economic Forum (WEF), the GCI
serves as a standardized measure for evaluating a country's competitiveness. It offers
an assessment and ranking based on the micro and macroeconomic factors that
contribute to this competitiveness. The index is built on 12 key pillars identified by the
WEF: Institutions; Infrastructure; Macroeconomic Environment; Basic Health and
Education; Higher Education and Training; Efficiency of the Commodity Market;
Efficiency of the Labor Market; Development of Financial Markets; Access to
Technology; Market Size; Business Sophistication; and Innovation Capability. For
example, Singapore consistently ranks among the world’s top countries in the Global
Competitiveness Index. In 2019, Singapore secured the No. 1 position globally due to its
favorable business environment, open policies, and robust investments in infrastructure
and human resource development.

Q3: Based on real-case analysis of specific country, what policy recommendations would be
used to improved the efficiency of national supervision models in fostering economic growth?

Singapore became the first to develop a comprehensive regulatory framework. In Singapore,

the supervision of different parts of the financial system combine in a single structure with
oversight responsibilities both over certain bodies as well controls central bank-related activity.
As announced in the MAS Amendment Act, 2017 (Act RTP1/17), which currently transits
through Parliament and expected to be effective soon, The Monetary Authority of Singapore
(MAS) a single agency responsible for monetary policy that was made only by acting
sustainable economic growth inflation managements financial services sectors advancement
The MAS has commenced for a new integrated supervision of financial institutions focussed on
effective risk management and prevention. The five departments in MAS that operate within its
organizational framework and specifically focus on ensuring the stability of financial system are
Banking Supervision Department (BD), Complex Institutions Supervision Department (CI),
Insurance Supervision Department (ID) Prudential Policy Depatment(PPD) and Specialist Risk
supervision department(SRD).The integrated supervisory model MAS applies RBS of financial
institutions. Notably, the element of supervision in Singapore creates risk profiles that target the
assessment of the risks emanating from an individual financial institution's risk appetite and not
as a general framework with respect to acceptable levels of business risk or governance
standards across all entities. The above supervisory role is indeed more effective within the
more active and modern financial market that is characterized by substantial central bank
independence as well as rigorous supervision from relevant stakeholders, such as investors,
contributors, and independent auditing firms.

There are still certain disadvantages of the Singaporean unified central banking model. And a
real case to illustrate the drawbacks of Singapore's one-stop regulatory model: The fall of
Lehman Brothers in 2008 provided home truths for why it should not get ratcheted up during
peacetime. While Lehman Brothers was not a bank that operated in Singapore, its failure had
knock-on effects on even the tiny island economy. Under these circumstances the Monetary
Authority of Singapore (MAS) was put under massive stress to monitor and control associated
risks that originated from within nationals financial institutions. MAS had multiple supervisory
departments already in place but the nature of risks associated with complex financial products
and global linkages - made it difficult for policies to change quickly or effectively. Centralizing
power within MAS will create a more sluggish decision-making process with an already need for
speedy responsiveness due external volatility. This incident underscores that while the unified
supervisory model may offer benefits, it is crucial to consider flexibility and responsiveness in an
increasingly complex and unstable financial environment.

Private-public partnerships are suggested to improve the functioning of a unified supervisory

model in Singapore and protect its financial system from recent technological changes. The
Monetary Authority of Singapore (MAS) should start by investing in the people that are doing the
supervisory work. Regular training programs, workshops and advanced courses on risk
management, financial technology (fintech), global trends in finance etc. serve as enablers for
the same. Providing the staff with valuable data will allow them to recognize and assess
potential development hazards in a more timely way, rendering better choices throughout
endorsement process. Furthermore, MAS has to engage in more international cooperation with
similar regulators so that it keep abreast of best practices and standards. Engaging in forums
such as the Basel Committee on Banking Supervision and other international organizations will
allow Singapore to learn from the experiences of other countries. Moreover, sharing information
regarding supervisory challenges, financial fraud, and cybersecurity threats will enhance MAS's
capacity to respond to external risks, thereby safeguarding the stability of the financial system.

Furthurmore, given the fast paced evolution of fintech, MAS would do well to create a regulatory
sandbox for new products and services. This includes offering guidelines on testing products in
a sandbox environment and supporting development of the fintech sector. While there may be
some merit to that — the legislation does add a layer of transparency and consumer protection
regarding these regulations, but could also open up new fintech product innovations… all while
still maintaining strong safety measures for our economy as it stands. In addition to the regular
reporting protocol, MAS should be reviewing fundamentally on a regular basis of holistic
financial landscape in terms systemic risk management mainly that can impact macroeconomic
stability. The early warning indicators serve as a bellwether for MAS to identify the signs of
growing financial risk immediately and deploy preventive actions. Furthermore, with the growing
dangers of cyber risks in sight for both traditional banking and fintech players alike, MAS needs
to work hand-in-hand with financial institutions as they look at putting measures to defend their
businesses against these. This includes conducting cybersecurity stress tests and developing
clear regulations regarding the responsibilities of institutions in protecting customer data and
financial information.

In conclusion, by implementing these recommendations, Singapore can not only improve the
effectiveness of its unified supervisory model but also ensure sustainable and stable growth
within its financial system amidst rapidly changing global conditions. These measures will
reinforce Singapore’s position as a leading international financial hub.

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