Can Devloping Economy learn to protect Depositor's interest?

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Hi Friends,

It is observed usually that, Asian economy reforms are crticised for not being so "Consumer Friendly" or in Alvin toffler's defination of Consumer are so called Prosumer (Produce and Consume simulataneously). I come across this article in The Asian Banker's talking about how Singapore is well ahead with their initatives in protecting bank depositor's hard earned money.

After Singapore Deposit Insurance Corporation (SDIC) was launched in April this year, its chief executive Ooi Sin Teik has been focusing on setting up a payout process to compensate Singapore’s retail depositors up to S$20,000 ($12,700) per depositor when a bank or financial institution fails.

“We have to talk to our scheme members in terms of how quickly they can respond. The biggest challenge is usually with the data. In the payout, the integrity of the data is paramount. The more reliable the data is and the closer you can get the data to where you can actually pay, the better off you are,” describes Ooi, 54, of his current project.

The deposit insurance scheme was initiated by the Monetary Authority of Singapore (MAS) five years after the Asian financial crisis to provide an additional layer of protection for depositors. Commenting on the timing, which some may view as late, Ooi muses: “One can argue on both sides. When you have a crisis, then you put something in place. Normally, you end up with the strong banks having to subsidise the weak banks.”

“But if in good times, you are collecting premiums, you are setting up the fund. Then you are giving time for the funds to be built up. So when the crisis happens, you can use the funds. For those countries like the U.S., which set up [insurance deposit corporation] in the middle of crisis, that’s when you have to use the taxpayers’ money. Here the model is different. We want to build up the fund using banks’ money,” he adds.

SDIC kicked off with 32 members – five locally incorporated banks, 24 full foreign banks and three finance companies. The city-state’s three local banks and Citibank are charged the lowest premium of three basis points. Some foreign banks with an asset maintenance ratio of less than two have to pay premiums of as high as eight basis points. SDIC intends to build up the deposit insurance fund to S$120 million ($75 million) over 10 years.

Due to the newness of the corporation, the banking veteran who spent 15 years with Singapore’s smallest lender Oversea-Chinese Banking Corporation (OCBC) explained that there is some degree of risk pricing, but “it’s not full-blown risk pricing yet. It’s risk more in terms of, ‘Do they have more assets in Singapore that can be used to pay depositors?’ If you look at the locally incorporated banks and finance companies, all of them pay three basis points so there’s no risk differentiation amongst them.”

Nonetheless, further risk-based pricing is not ruled out. According to Ooi, OCBC’s former risk committee member, “It [risk-based pricing] is already in the pipeline. MAS is working on a risk differential premium pricing. In time to come even among the local institutions, not everybody will pay three. It depends on how MAS assesses their risk management practices, perhaps the capital, the management, everything that has to do with prudent bank management.”

Unlike U.S. Federal Deposit Insurance Corporation, MAS decided on the pay box model for SDIC. It is “a very, very simple, basic model of deposit insurance,” says Ooi, who retired from OCBC in 2003 as deputy president, head of external affairs/corporate stewardship. SDIC will collect the premiums, pay compensation to depositors and manage the funds to preserve capital and maintain liquidity, leaving the more complex “risk minimiser” role to MAS. “MAS’ view is that since they are playing the risk minimising role, the only thing they want done is to split the collection and investment and payout. It can already be quite complex, especially during failure,” he explains, adding that the division of labour will add greater accountability and transparency.

For Full article plese visit The Asian Bankr's Site by clicking here.