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Analysis of The Deposit Protection Scheme in Hong Kong

Analysis of The Deposit Protection Scheme in Hong Kong. Group No.: 3 Group List: Emily Kwong Kit-Man (053195) Nicole Chan Yu-Fong(053216) Carol Tsang Hing-Yee (053218) Sharon Chan Sze-Long (053228). CONTENT. Introduction Aims Operations and Coverage Analysis Example of Success - Canada

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Analysis of The Deposit Protection Scheme in Hong Kong

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  1. Analysis of The Deposit Protection Schemein Hong Kong Group No.: 3 Group List: Emily Kwong Kit-Man (053195) Nicole Chan Yu-Fong(053216) Carol Tsang Hing-Yee (053218) Sharon Chan Sze-Long (053228)

  2. CONTENT Introduction Aims Operations and Coverage Analysis Example of Success - Canada Comparison of the Scheme between Hong Kong and Canada Example of Failure - Japan Recommendations Opinions Conclusion

  3. Introduction • The most basic and common wealth • Depositing money in banks • Safe • How about if the banks go bankruptcy? • Hong Kong Deposit Protection Board • All of the licensed banks • Except those exempted by the board • Compensation limit: • $100,000 per depositor

  4. Aims • Reduce the risk of rumour-driven runs • The possibility of bankruptcy • Provides an orderly compensation method with the depositors • Lowers fall-out effects of a bank failure. • Open an account • Automatically joined the scheme

  5. Operations and Coverage

  6. History • Collapse of Bank of Credit and Commerce International • Lots of bank runs in Hong Kong • Notice the need of establishment • Published the public consultation • For the safety and the stability of the banking system • 2-year Preparations • The Deposit Protection Scheme Ordinance was enacted in May 2004 • 25th Sep 2006

  7. Example of success - Canada CDI run for almost 15 years until 1983, first deficit appeared To improve the scheme : • authorizing the CDIC with much more power to manage • supervise the insurance members, increasing the contribution rate • changing the fixed rate into flexible according to uncertain risk

  8. Comparison of the Scheme between Hong Kong and Canada

  9. Example of Failure – Japan • The Deposit Insurance Corporation of Japan (DICJ) • Built up from 1970 to 1991,no bankruptcy • Since the 1980sharp rise in stock and property market resulted in a bubble economy • With the loosen supervision of finance activities and declined industrial self-discipline • →a tremendous fluctuation of the economy

  10. Large amounts of bad debts and loss • Ruined the financial situations • Lots of bankruptcy and folding up • Improper macroeconomic policies • Could not function properly • Lost it independence • Because of the control of central bank • An institution combined with the government for financial supporting to organizations

  11. Recommendations To keep away from being failed, The HKMA should: • maintain the supervision on financial activities • prevent fluctuations in economy by using proper macroeconomic policies • ensured BDPS is independent from all other government bureaus so that its operation will not be interfered

  12. Our Opinions • Due to cancellation of interest agreement:- Banks can formulate own interest rate to attract depositors- Making small amount depositors fragil when banks go into crisis • Higher risk of moral hazard during risk management. • Lack of low risk taking premium insurance

  13. Conclusion • H.K. has no experience in DPS • There are still advantages: • References from experienced developed countries • Have examples of what NOT to do • Make improvement according to relevant failure

  14. Some reasons that makes H.K.’ s DPS better • Clear objectives:- Maintain financial stability- Protect small amount depositors • More vital and necessary for protection.- no other business portfolio for diversity of risk of deposit • All licensed bank has to participate • Not capable to buy insurance for the little amount of money they put in licensed bank

  15. Understanding independence is the key • A separate broad is set up for the supervision of the running of DPS • Effectively avoid moral hazards Finally, • We have enough evidence to show that DPS in Hong Kong is going to be a success

  16. References Books: Deposit insurance : actual and good practices Garcia, G. G. Washington, DC : International Monetary Fund, 2000 The design and implementation of deposit insurance systems Hoelscher, David S. Washington, DC : International Monetary Fund, c2006 The postmodern bank safety net [electronic resource] : lessons from developed and developing economi Calomiris, Charles W. Washington, D.C. : AEI Press, 1997 The political economy of deposit insurance Luc Laeven, Washington, DC : World Bank, 2004 Deposit insurance around the world : a comprehensive database Asli Demirguc-Kunt, Baybars Karacaovali, Luc Laeven; Washington, DC : World Bank, 2005 《存款保險制度研究 》 何光輝; 中國金融出版社; 2003 《存款保險：理論與實踐》 羅瀅; 社會科學文獻出版社; 2005 Journal, Magazine, Newspaper, and others 《中國要聞》建立存款保險制度有望邁出實質性步伐 - (經濟通) 17 Jan 07 http://hk.news.yahoo.com/070117/74/203tw.html 《中國要聞》人行官員稱將盡快出台存款保險法律法規 - (經濟通) 13 Nov 07 http://hk.news.yahoo.com/061113/74/1wb7q.html 銀行存款保險下周一實施 - (明報) 23 Sep 06 http://hk.news.yahoo.com/060923/12/1tj37.html 市民擔憂 保險費轉嫁 – (明報) 20 Sep 06 http://hk.news.yahoo.com/060919/12/1tb3n.html Video from FDIC http://www.vodium.com/MP/MPF/1.1.3/mpf.asp?xml=/vs_data/pn100318_fdic_di_2006/84B8FM1Q/mediapod.xml&type=mediapodflash

  17. Article: Hong Kong Democratic Foundation Deposit insurance no answer to banking problems, 4 September 1991 http://search.newyorkfed.org/search/frbny.jsp?querybox=Deposit+Insurance&search_submit.x=20&search_submit.y=8 Deposit Protection Scheme, 17 May 1992 http://www.hkdf.org/nl.asp?func=showarticle&type=2&article=237 Hong Kong Democratic Foundation Enhancing deposit protection in Hong Kong, 29 January 2001 http://www.hkdf.org/nl.asp?func=showarticle&type=2&article=147 Hong Kong Trade Development Council Does Hong Kong Need Deposit Insurance? May, 2000 http://www.tdctrade.com/econforum/hkcer/hkcer000801.htm The University of Hong Kong (School of Economics and Finance) Deposit Insurance in Hong Kong? September 1991 http://www.hku.hk/hkcer/articles/v10/rluk.htm The University of Hong Kong (School of Economics and Finance) Does Hong Kong Need Deposit Insurance? May/June 2000 http://www.hku.hk/hkcer/articles/v59/chu.htm Hong Kong SAR Government Information Centre Introducing Deposit Insurance in Hong Kong, March 2002 http://www.info.gov.hk/archive/consult/2002/deposit-e.pdf Federal Reserve Bank of San Francisco Asia Focus for March 15, 2005 http://www.frbsf.org/publications/banking/asiafocus/2005/AsiaFocus-March05.pdf

  18. Website: The Board of Deposit Protection in Hong Kong http://www.dps.org.hk/ The Hong Kong Monetary Authority http://www.info.gov.hk/hkma/index.htm Federal Deposit Insurance Corporation http://www.fdic.gov/deposit/index.html Deposit Insurance Corporation in Japan http://www.dic.go.jp/english/index.html College of Business Administration http://www.cba.unl.edu/dept/finance/ MingPao Forum http://forum.mingpao.com/cfm/Forum1.cfm Wikipedia http://www.wikipedia.org Yahoo! http://hk.yahoo.com/ Google http://earth.google.com/

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