RESPONSE TO FEEDBACK RECEIVED -
SECOND CONSULTATION ON DEPOSIT INSURANCE

On 23 April 2004, MAS released the second consultation paper on the establishment of a deposit insurance ("DI") scheme in Singapore.  The first consultation paper, issued in August 2002, discussed key features of the scheme such as the coverage limit of S$20,000 per depositor per institution and the funding structure.  The second consultation paper makes recommendations on the implementation details for the administration of the DI scheme, including the mandate and governance of the DI administrator, coverage of specific deposits and depositors, the depositor payout process and management of the DI fund. 

The consultation period closed on 4 June 2004.  MAS thanks all respondents for their comments.  Some of the comments of wider interest and our responses are highlighted below.   

1.   Deposits held by Sole Proprietorships and Partnerships

The consultation paper proposed that deposits held by sole proprietorships and partnerships should be covered by DI.  Some banks have suggested that deposits of sole proprietorships and partnerships should not enjoy DI cover.  The two main reasons are:

a)   Sole proprietorships and partnerships are businesses, hence providing DI coverage to their deposits would be inconsistent with the objective of protecting small retail depositors.

b)   It will be administratively difficult to separately identify the deposits of different partners, especially in the case of large partnerships, for aggregation with the individual partners' personal deposits with the bank.

MAS' Response:

We agree with the comments on the exclusion of sole proprietorships and partnerships from DI coverage. Thus DI will only insure the personal deposits of individuals in standard savings, current and fixed deposit accounts and deposits of registered and exempt charities.  Deposits of businesses will be excluded.

2.   Premium Assessment

The consultation paper proposed that full netting will be adopted for determining the payout to depositors in line with Singapore's insolvency law.  In view of this, some banks have suggested that premium assessment should also be based on the net insured deposit base of the bank.

MAS' Response:

We are of the view that the premium assessment on a net basis will be administratively cumbersome and will add to the cost of the DI scheme.  Furthermore, the average premium rate would have to be raised in order to attain the target fund size, if premiums were paid on a net basis.  Hence, we will retain the proposal to assess premiums on the gross insured deposit base.

3.   Coverage of Specific Bank Products

The consultation paper proposed that deposits placed as collateral for credit facilities extended by the bank would not be covered by DI.  Clarification was sought on whether it was the deposit equivalent to the full amount of the credit facility or the actual amount of credit facility utilized that should be excluded from DI coverage. 

MAS' response:

As the credit facility can be fully drawn down at any time, the deposit equivalent to the full amount of the credit facility granted, rather than the utilised amount of credit will be excluded from DI coverage. Depositor payout will be determined based on the full amount of the credit facility granted instead of the utilised credit facility, even if the deposit is in excess of the utilised credit facility.  However, the amount of deposit in excess of the credit facility granted will enjoy DI coverage.

MONETARY AUTHORITY OF SINGAPORE
13 July 2004