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Saturday, 30 June 2007

Singapore trade minister warns banks market risky

Dear all,

A timely news article for all to consider...look out for the words in bold and feel free to give me your comments.

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By Jan Dahinten
REUTERS


SINGAPORE – Singapore's trade minister warned banks on Friday to be extra vigilant in the current environment of ample liquidity and bullish markets to spot economic and financial risks and be prepared to handle shocks.

“It is important for banks not to become complacent. As banks pursue the many opportunities that lie ahead, we must not let our guard down,” Trade and Industry Minister Lim Hng Kiang said, according to the text of a dinner speech to bankers.

“Banks must not be lulled into a false sense of security by the external environment's bullishness and resilience to shocks so far. We must not allow ourselves to get overconfident with our knowledge and analyses of the risks out there.”

Lim, who is also the deputy chairman of the Monetary Authority of Singapore, Singapore's central bank, warned that risks may deviate from expectations.

Citing a central bank survey of risk managers and traders, he said that most industry players believed that asset prices were frothy and that a big shock could happen, possibly before the end of next year.

“Nevertheless, the financial system has been resilient so far. Have we learnt our lessons from past crises and are now better prepared? Or are we just plain lucky? Whichever the answer, we should remain vigilant.”

Lim said that respondents to the survey spoke of hedge funds and private equity in the same breath as “highly leveraged,” “covenant-lite structures” with “large speculative positions.”

“Respondents expressed concern about the systemic risks such providers posed and their default risk in a severe market correction,” he said.

Bear Stearns (BSC.N), the fifth-largest U.S. investment bank, saw two funds it manages melt down after rising U.S. subprime mortgage defaults earlier this year depressed prices of securities named collateralized debt obligations. CDOs, essentially repackaged portfolios of subprime home loans, were among the funds' main investments.

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