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The Executive Council (ExCo) today (April 24) approved in principle the proposal to introduce a deposit insurance scheme (DIS) in Hong Kong and requested the Hong Kong Monetary Authority (HKMA) to undertake more detailed work with a view to producing a set of final recommendations on how the scheme should be structured.
In October 2000, the HKMA released a consultation paper to seek the public's views on whether deposit protection should be enhanced and, if so, how. During the consultation exercise, public views were received through various channels, including written submissions from members of the public, a motion debate in the Legislative Council (LegCo), discussions in District Councils, and meetings with banks and other interested parties.
The consultation exercise indicated that there is broad public support for the introduction of a DIS in Hong Kong. From those who supplied written submissions or whom the HKMA met to discuss this subject, 41 out of the 59 respondents registered support for a DIS. Moreover, LegCo passed a motion on December 13 2000, urging the Government to introduce a properly designed DIS in Hong Kong.
Taking into account the comments received from the public consultation, the Government's preliminary views on the design features of the DIS are:
* All licensed banks would be covered;
* Participation of banks would be mandatory;
* The coverage cap would be set at HK$100,000 initially in order to curtail moral hazard and keep down the insurance cost;
* An ex-ante funded scheme is preferred;
* Risk-based premium should be further explored;
* A separate legal entity would be set up to operate the DIS, but its management structure should be as lean as possible.
"We welcome the decision of ExCo. The introduction of a DIS will continue the evolutionary process of enhancing deposit protection in Hong Kong and further strengthen the resilience of our banking system," said Mr Joseph Yam, Chief Executive of the HKMA.
Although there is wide support for introduction of a DIS, some large banks remain opposed. Their concerns relate mainly to the issue of moral hazard, the insurance cost and the fairness of its allocation. These are issues that will be addressed in the detailed design stage.
"These are legitimate concerns and should not be dismissed lightly. It is clear that keeping the cost as low as possible is a key issue. The HKMA has conducted further analysis on the level of premium required. There appears to be scope to bring down the premium from the 10 basis points previously indicated and to reduce the target fund size. In view of the concern about the risk of moral hazard, the HKMA is exploring the feasibility of introducing a risk-based system to assess premium from the start. This, however, will require more research and analysis before any commitment can be made," added Mr Yam.
"There is a considerable amount of detailed design work to be done. The HKMA will need to consult further as and when more detailed recommendations on the specific design features of the DIS are developed. It is not expected that any scheme could be implemented before 2002 at the earliest," said Mr Yam.
(An explanatory note on ExCo's decision and a Summary Report on Results of Public Consultation can be downloaded from the HKMA's website at http://www.hkma.gov.hk)
For further enquiries, please contact:
Caitlin Wong, Manager (Press), at 2878 1687 or
Jasmin Fung, Manager (Press), at 2878 8246
End/Tuesday, April 24, 2001
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