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 non-
bank 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-to-
upper 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