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Enhancing Deposit Protection in Hong Kong 24 April 2001

Enhancing Deposit Protection in Hong Kong 24 April 2001. 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

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Enhancing Deposit Protection in Hong Kong 24 April 2001

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  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. Government’s 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 banksto 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.

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