Singapore regulator consults on raising bank depositors’ compensation

Singapore regulator consults on raising bank depositors’ compensation

The Monetary Authority of Singapore is seeking industry and public comment on a plan to raise to S$75,000 the amount of compensation account-holders whose wealth is held in Singapore dollars would receive in the event that their bank or finance company might fail.

S$75,000 is roughly equivalent to US$55,000, or £42,300. The current rate per account is S$50,000 (US$36,700, £28,200).

In a statement, the MAS noted that the deposit insurance coverage was last raised, to S$50,000 from S$20,000, in 2011, “which, at the time, fully covered more than 90% of insured depositors”.

“Since then, with the growth in deposit base, the percentage of fully-covered insured depositors has fallen to 87%,” the regulator added.

“The proposed coverage limit of S$75,000 will restore the percentage of fully insured depositors to above 90%, in line with international norms.”

The MAS said it would look to increase the targeted size of the fund set aside to cover deposits in the event of a bank failure, of  30 basis points of total insured deposits, “in a progressive manner”, by extending the build-up period of the DI Fund from 2020 to 2028, and by revising the annual premium rates levied on full banks and finance companies to 2.5 – 8.0 basis points, from 2.0 – 7.0 basis points.

Anurag Mathur, head of retail banking and wealth management for HSBC Bank Singapore, told the local Today news website  that the proposed changes to the deposit insurance scheme were “timely, as they reflect the growing affluence in this region”.

“We believe this move will further lend confidence to Singapore’s financial system and the banks operating here, as it will offer greater protection to depositors,” he added.

The Singapore Deposit Insurance Corporation, or SDIC, was created in 2006, to administer the City-State’s deposit insurance scheme and manage the deposit insurance fund set up to pay out in the event of a bank failure. This followed the enactment of the Deposit Insurance Act in 2005.

Financial crisis issue

Depositors’compensation schemes became a focal point of regulator and media attention in 2008, when a number of banks failed in jurisdictions that didn’t have compensation schemes, or schemes that weren’t adequate to cover many depositors. Depositors in the offshore arm of Kaupthing Singer & Friedlander, based in the Isle of Man, for example, were hit when it turned out that they weren’t covered; also not protected were savers in the Guernsey subsidiary of Iceland’s Landsbanki.

Currently in the UK, depositors are covered up to £85,000, if their deposit meets certain conditions.  In the US, the Federal Deposit Insurance Corp insures individual accounts up to $250,000, again assuming they meet the scheme’s requirements,  including the fact that the bank in question is an FDIC-insured institution.

The MAS consultation closes on 4 September. To read and download the 60-page consultation document on the MAS’s website, click here. 

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