RESPONSE TO FEEDBACK RECEIVED -
CONSULTATION ON DRAFT DEPOSIT INSURANCE BILL

On 28 January 2005, MAS released a consultation paper on the draft Deposit Insurance Bill ("DI Bill"). The draft DI Bill is a new piece of legislation which will establish the DI scheme to provide an explicit but limited guarantee to depositors that they will be compensated up to a specified amount of their deposits should the bank or finance company they placed their deposits with fails. 

The consultation period closed on 28 February 2005.  MAS thanks all respondents for their comments. 

Most of the comments received related to technical drafting issues and will be taken into consideration in revising the draft Bill.  There were also some requests for further information, for example, on the asset maintenance requirement which will be set out in Regulations and issued for consultation later.  Some of the other comments of wider interest and our responses are highlighted below.   

1.       Disclosure of Premium Contribution and Premium Rates

The draft DI Bill provided that Scheme members would not be allowed to disclose the amount of premium contribution, except to their directors, officers and professional advisers for the performance of their duties.  Some banks have suggested that they be allowed to disclose this information to their head office, parent supervisor and other related entities which may request for this information. It was also noted that banks may be required to disclose the amount of premium contribution in their financial statements under accounting standards.

MAS' Response:

The objective of this restriction is to keep confidential the bank's supervisory risk rating, which could be inferred from the amount of premium contribution paid by the bank. However, we agree that the prohibition of disclosure of premium contributions to the head office or parent supervisor of foreign banks and in financial statements could pose practical difficulties for the bank and is not necessary. Hence, we will amend the DI Bill to restrict only the disclosure of the applicable premium rate, category in which the Scheme member is classified, and supervisory risk rating assigned to the bank, including such other information from which these can be inferred, except to directors, officers, head office and the parent supervisor of the Scheme member. The disclosure of the amount of premium contribution will now be permitted.  This will be reflected in the final DI Bill.

2.       Premium Contributions

Some banks sought clarifications on the calculation of premium contributions, particularly on the deposit base to be used to assess premium contributions.

MAS' Response:

Annual premiums will be assessed on the bank's total insured deposits for all its insured depositors, capped at $20,000 for each insured depositor.  This will be made clearer in the final Bill.  Detailed rules on the calculation of premium contributions payable by Scheme members will be set out in Regulations.  We will issue the draft Regulations for consultation at a later date.

3.       Financial Provisions of the DI Agency and Fund

One respondent requested details on the audit and accounts of the DI agency.

MAS' Response:

The DI agency and DI fund will be audited annually by the Auditor-General or an auditor appointed by the agency in consultation with the Auditor-General. The audited financial statements of the DI fund and agency will be submitted to the Minister after the board of directors of the agency has approved the financial statements.  The financial year (1 April to 31 March) of the DI fund and agency will be set out in the DI Bill and memorandum and articles of association of the DI agency respectively.

4.       Definition of "insured depositor"

One bank raised the point that generally, a bank treats the trustee, rather than the beneficiary of a trust account, as the person legally entitled to repayment of a deposit.

MAS' Response:

To allow the beneficiary to be entitled to compensation under the DI scheme in the event of failure of a Scheme member, we will amend the definition of "insured depositor" in the DI Bill to clarify that a beneficiary who is an individual under a trust is included.

5.       Deposits Placed as Collateral

A query was raised on the coverage of deposits placed as collateral for facilities extended by offshore branches, subsidiaries and affiliates of the bank.

MAS' Response:

MAS had earlier stated, in our response to feedback to the second DI consultation paper (response published on 13 July 2004), that for deposits placed as collateral for credit facilities with the bank, the deposit equivalent to the full amount of the credit facility granted, rather than utilised amount of credit will be excluded from DI coverage.  The amount of deposit in excess of the credit facility granted will enjoy DI coverage.

We have considered this further, and have decided that all deposits placed as collateral, including those used as collateral for facilities or services with other banks or financial institutions, should not be insured. Furthermore, the full amount of the collateralized deposit will not be insured, and not just the amount equivalent to the credit facility granted.  Such deposits, being encumbered, are not funds available to the depositor and hence should not be insured.

MONETARY AUTHORITY OF SINGAPORE
7 July 2005