Enhancing Deposit Protection in Hong Kong 24 April 2001

1
Enhancing Deposit Protection in Hong Kong24
April 2001
2
Results of Public Consultation

• The consultation indicates that there is broad
  public support for a DIS in Hong Kong
• LegCo motion debate
• District Councils
• 41 out of 59 respondents supported DIS
• However, most large banks remain opposed.

3
Governments View

• Taking into account the results of the public
  consultation, ExCo approved in principle the
  proposal to introduce a DIS.
• HKMA is requested to undertake more detailed work
  to produce a set of final recommendations on how
  the scheme should be structured.

4
Concerns of the Respondents

• The main concerns of the respondents as revealed
  by the consultation are -
• the risk of moral hazard
• cross subsidisation between banks and unfair to
  the large banks
• the cost of insurance, and the extent to which
  this may be passed onto small depositors

5
Concerns of the Respondents (2)

• These are legitimate concerns.
• They will be addressed through careful design of
  the DIS. In particular -
• we are inclined to adopt a lower coverage cap of
  100,000 to reduce cost and moral hazard
• there appears to be scope to bring down the
  premium (from 10 basis points to, say, 8 basis
  points) and to reduce the target fund size
• we are exploring the feasibility of introducing a
  simple risk based system based on supervisory
  ratings of banks to assess premium

6
Other Design Features

• Preliminary view on other main design features
• all licensed banks would be covered, but the HKMA
  will consider further whether RLBs and DTCs
  should be included
• participation should be mandatory in order for
  the scheme to be effective
• an ex-ante funded scheme is preferred
• the DIS would be operated by a separate legal
  entity for better accountability but with a lean
  structure in order to minimize cost

7
Way Forward

• There is still a considerable amount of detailed
  design work to be done, in particular
• further study on the detailed design features
• the priority claim status and netting
  arrangements for the DIS and other related
  liquidation issues
• the preparation of draft legislation
• Further consultation with relevant parties will
  be conducted as necessary.
• Any scheme could only be implemented in 2002 at
  the earliest.