I REFER to the letter last Saturday, 'Higher cover for bank deposits'.

Singapore's banking and financial system remains sound. Depositors and insurance policy-holders should be reassured that banks and insurance companies in Singapore are required by the Monetary Authority of Singapore (MAS) to have assets exceeding their liabilities by an appropriate margin. They are also required to abide by stringent regulations on capital, asset quality and risk concentration, and to put in place sound risk-management systems and processes.

To protect depositors and policy-holders, MAS' approach has been to emphasise stringent regulation and supervision of financial institutions so that weaknesses can be identified and addressed at an early stage. Nevertheless, in the worst case scenario where a bank or insurance company fails, a safety net is provided by deposit insurance and the policy-owners' protection fund respectively. Deposit insurance, which is an explicit guarantee on deposits, provides a payout of up to $20,000 to each individual depositor per bank. For deposits in excess of the payout, individual depositors can also claim from assets of the failed bank. Depositors and policy-holders, in the case of an insurance company, would rank ahead of unsecured creditors and shareholders in their claims.

Our deposit insurance scheme is funded through premium contributions paid by the industry. A higher coverage limit will come with higher cost which may be passed on to depositors. MAS, together with the Singapore Deposit Insurance Corporation (SDIC) that administers the deposit insurance scheme, will review the coverage limit regularly, taking into consideration the objectives of the scheme and international norms.

Some countries have recently issued a blanket guarantee on deposits. These are emergency measures taken to combat the threat of a widespread loss of confidence in a country's financial and banking system. The cost will ultimately be paid for by taxpayers. The situation in Singapore continues to be stable and does not warrant such measures.

Angelina Fernandez (Ms)
Director (Communications)
Monetary Authority of Singapore

This article was first published in The Straits Times on October 08, 2008.