Demand for increase in deposit insurance coverage goes global

Calls for an increase in deposit insurance have become a global voice as nations have resorted to blanket coverage to increases in coverage.

In the Philippines, legislators have filed bills for an increase by a 100 percent the coverage of the Philippine Deposit Insurance Corp. (PDIC).

The PDIC, which is under the wing of the Bangko Sentral ng Pilipinas (BSP), is presently mandated to protect deposits of up to P250,000 (roughly $11,000). It was increased from just P100,000 to its present level in 2004.

However, bank executives said that the suggested increase in bank deposit insurance coverage should not result in additional cost for the banks.

Banks are slapped an assessment rate by the PDIC equivalent to 20 basis points or one-fifth of one percent of a member bank’s total deposit liabilities.

They said that the industry supports increasing depositor protection, but it should not been additional cost to them. Bankers added that it will only be passed on to the banking public, if their present assessment rate is increased.

Meanwhile, Hong Kong has guaranteed all bank deposits until 2010, having previously offered coverage of up to HK$100,000 ($13,000).

According to The Asian Banker, Taiwan increased by a 100-percent the amount of insurance it offers on bank deposits to TW$3 million ($93,000), from TWD1.5 million ($46,000).

Indonesia extended its coverage to two billion ringgit ($207,000) from 100 million ringgit ($10,000). Vietnam covers bank deposits up to VN$30 million ($3,000), South Korea up to 50 million won ($42,000), and India, which recently saw a run on ICICI Bank, covers up to 100,000 rubles ($2,000) per person.

Malaysia operates independent conventional and Islamic deposit insurance schemes. It offers RM60,000 ($17,000) per depositor at a conventional bank, and the same at an Islamic bank, giving each depositor a possible total coverage of RM120,000 ($34,000).

Thailand already implemented a full guarantee of bank deposits last August with the formation of the Deposit Protection Agency. The move, which comes after legislation passed 18 months ago, marks the first time that Thai deposits have had an explicit guarantee.

However, the blanket guarantee is only a temporary move. In the next five years, the level of coverage will decrease on Aug. 11 to 100 million baht ($2.9 million), then 50 million baht ($1.5 million), 20 million baht ($586,000), until it is at the final level of one million baht ($29,000).

The regional publication said that while China is without a system of deposit insurance, deposits are presumably protected since all banks are state-run.

“A deposit insurance scheme has been under study for about 10 years, and in 2004 the People’s Bank of China set up a deposit insurance division. It also signed a memorandum of understanding on cooperation with the FDIC last year,” The Asian Bankers said.

Israel does not operate a deposit insurance scheme, and the governor of the central bank, Stanley Fischer, said in a press interview this week that deposit insurance is only effective when a single bank is failing, rather than in a “general crisis”.

Japan currently guarantees up to ¥100 million ($976,000). Japan’s Finance Minister Shoichi Nakagawa admitted that they considered guaranteeing all bank deposits.

Australia and New Zealand’s prime ministers were earlier quoted that they would be providing blanket guarantees to all bank deposits in their respective countries.

The same day, the UAE announced that it would offer a federal guarantee to all bank deposits in the Emirates for three years, although state-owned banks hold around 60 percent of all deposits and therefore support is implied.

In the United Kingdom, the compensation limit on bank deposits was increased to 43 percent, from 35,000 pounds to 50,000 pounds.

In the United States, where all the problems started, the Federal Deposit Insurance Corp. (FDIC) will increase the average insurance premiums paid by banks to 13.5 cents for every $100 from the current 6.3 cents.

Eurozone countries Denmark and Austria implemented blanket guarantees. – Ted Torres