Topic  Deposit Insurance

The Mission of DPS Maintain an effective and efficient Deposit Protection Scheme

The Development of DPS  I991 Subsequent bank runs + Bank of Credit and Commerce International (BCCI) Crisis  1992 : Public consultation  Reject  1997: Asian financial crisis  Concern in banking system  1998 : HKMA recommend commissioned a consultancy study  October2000 consultation paper was issued for public consultation  April 2001 Chief Executive in Council approved  May 2004 Enactment of the DPS Ordinance  July 2004 The Hong Kong Deposit Protection Broad was formed

Objectives  Providing a measure of protection to depositors  Contributing to the stability of the banking system  Prevent withdrawal of funds from a bank will led to a bank failure  Minimize the likelihood of a bank failure caused by rumor  provide an orderly means of compensating depositors

Countries with Explicit,Limited Deposit Insurance Systems Deposit insurance is a measure taken by banks in many countries to protect their clients ’ savings  Africa(4)  Asia(10)  Europe(32)  Middle East(4)  Western Hemisphere (17)

FDIC in USA  The Federal Deposit Insurance Corporation  United States government corporation  Glass-Steagall Act of 1933  Provides deposit insurance up to $100,000 per depositor

FDIC in USA Types of accounts covered  Checking accounts, Negotiable Order of Withdraw, MMDAs  Savings accounts  Money market account  Certificates of deposit (CDs)

FDIC in USA Types of accounts not covered  Investments such as US Treasury securities  Stocks, bonds, mutual funds and money markets funds  Losses due to theft or fraud  Errors made in your accounts

Comments  problems of moral hazard  CAMEL ratings (Capital adequacy) 、 (Asset quality) 、 (Management) 、 (Earnings) 、 (Liquidity)  rewarded for having strong management and good asset quality

 moral hazards for insurance can't be eliminated, but can be minimized  Coinsurance  attractive conditions and encourage those depositors including small, large depositors, debtors  Enforce it clearly  Let depositors know how the system works  Increase system transparency

 Assets in banks : liquid assets and inestimable loans  When most depositors request to pay cash, the banking system may go into a fragile stage.  Public know the system clearly, such as interests,principal  Definition among all banks should be the same

 Adverse selection regulate all banks should participate mandatory 2006 年中期報告 Customer loanCustomer deposit Hang Seng$2,665,050, ,480,970, Dah Sing48,540,085, ,259,426, Hang Seng 54 % Dah Sing 83%

FDIC in USA  Almost 100% of bank deposits are insured and only 3 % of US deposit- taking institutions are not member.  Membership of the scheme is part of marketing strategy

DPS in HK  Quality of bank management and regulations  Depositors money is not put in to danger stage  government

Group 7  Chung Chun Kwong,  Chung Wing Leung,  Kwong Tik Man,  Ngan Yee Kwan,