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On June 18th, 2012 the National Assembly approved the Law on Deposit Insurance that will come into effect on January 1st, 2013. At present, authorities are urgently drafting for issuance of by-law regulations so that depositor protection policy can be implemented promptly and effectively. How will the Law on Deposit Insurance influence depositors and which are requirements or issues of vital importance in issuing by-law regulations? For this topic, we have made a conversation with an economic expert, Mr. Tran Du Lich (PhD), National Assembly Deputy. Following is the interview:
Reporter: Would you please highlight some new issues in the Law on Deposit Insurance in comparison with the previous regulations?
During the past ten years, the implementation of the Deposit Insurance Policy has affirmed the commitment of the Government in protecting depositors, enhancing transparency, implementing market principles of using less national budget to solve credit fails in accordance with international practices in managing financial market and promoting public confidence. The Deposit Insurance of Vietnam has well implemented the mission of protecting depositors and making a contribution to a healthy banking system. However, there were several limitations in the Deposit Insurance Policy.. In order to overcome these concerns, in the third session of the 13th National Assembly; the Assembly has approved the Law on Deposit Insurance. There are some improvements in the law including applying the risk-based premium in place of the flat rate, clarifying the legal position of the Deposit Insurer, State management on Deposit Insurance and the information supply for the DIV to carry out its mandate… Establishing the Law is to effectively implement the Deposit Insurance Policy, best protect depositors' interests, making a contribution to the stability of the credit institution system and ensure a safe and sound development of banking system.< /p>
Reporter: How have these changes influenced depositors?
Changes in the banking system have clearly affected public confidence so far. Thus, the improvement of the mechanism and policy in order to protect depositors' interests is a message of the State to enhance public confidence. For example, the National Assembly defines that the Deposit Insurance System is established by the Government and its mandate has reflected the commitment of the Government in protecting people’s rights. The increase in the coverage will make people feel safe about depositing money in the bank, or the application of risk-based premium will contribute to a fair competitiveness among banks…
Reporter: You have mentioned that the Deposit Insurance System is a financial institution founded by the Government. So how will its mandate, function and State management be institutionalized in the guidelines for the Law on Deposit Insurance?
The decree for the implementation of the Law on Deposit Insurance must provide the mandate and function of the Deposit Insurer in accordance with the Law, creating a favorable condition for the Deposit Insurer to carry out its mission. The Law also defines the function of the Government in the State management regarding Deposit Insurance. The responsibility for State management related to other Ministries is also stipulated in the Law. For example, the responsibility for State management of the SBV on Deposit Insurance includes promulgating, submitting standardized documents on Deposit Insurance to the authorities; submitting the development strategy to the Prime Minister for approval, supervising, inspecting, handling violations and resolving claims of depositors, signing international agreements or submitting to the governmental authorities for signing the accession to international agreements on Deposit Insurance. The reason for these stipulations is that Deposit Insurance activities are closely connected with public confidence in the banking system, so the Deposit Insurer was designed to be an independent institution of the banking system in order to enhance the effectiveness of Deposit Insurance Policy.
Reporter: Another issue that draws public attention is the coverage. How appropriate do you think the coverage is?
In my opinion, this issue has a direct impact on depositors’ confidence. Based on the experience of other countries, when the financial market is more volatile, the coverage increase makes depositors have confidence in the banking system. In fact, the higher deposit insurance coverage is, the less reimbursement is made. Perceivably, it is not necessary to get worried of insufficient funds for reimbursement in case of a bank failure. The most important is how to successfully establish an appropriate mechanism of mobilization, which enhance people trust in the banking system, risks of failure shall be eventually mitigated. Practical experience shows that it's the lack of public confidence in a bank that gives rise to bank-runs, insolvency. We should have a proper policy on deposit insurance coverage in which higher coverage for the crisis period and lower for the stable period in accordance with deposit insurance fund forecast and create a favorable mechanism to change the coverage in order to avoid moral hazard if neccesary.< o:p>
Reporter: In your opinion, how appropriate should the Deposit Insurer's access to information on published institutions be so that the Deposit Insurer can pro-actively implement evaluation, analysis to better protectors deposit' interest?
According to the Law, the Deposit Insurer shall be entitled to receive data and information on insured institutions from the State Bank of Vietnam to carry out its mandates. The SBV should take responsibility to provide the Deposit Insurer an access to information on insured institutions as prescribed by the Government. Therefore, the DI's access to information must be clearly stipulated in the Decree guiding the implementation of the Deposit Insurance Law, which helps the DI to carry out its mandates. Pursuant to the Deposit Insurance Law, the Deposit Insurer's access to information and data is through 2 channels: one from the SBV and the other from insured institutions. The former is of vital significance as it allows the Deposit Insurer to analyse, evaluate the risks of institution objectively, proactively and timely.
Similarly, relationship announced institutions getting membership of the Deposit Insurer shall create direct legal bilaterally. In case an institutional institution fails, the Deposit Insurer shall be obliged to make reimbursement to depositors. Thus, the Deposit Insurer needs to get access directly to information of insured institutions in order to assess the situation and ensure the effectiveness of deposit insurance policy.
Reporter: So in your opinion, what should we do in order to implement the Law on Deposit Insurance effectively?
- The governmental authorities should soon issue by-law regulations providing clear guidance on implementation of the Law on Deposit Insurance which are in consistence with the Law and detailize provisions of the Law to ensure the immediate implementation of the Law after issuance. As some issues have direct impact on depositors and public institutions, they should be soon issued such as the coverage, premiums, etc.
- In the capacity of the only institution that implements policies on deposit insurance in Viet Nam< /st1:country-region>, the Deposit Insurance of Vietnam should actively contribute ideas, and advise/ advise the governmental authorities to issue documents providing guidance on the law. Meanwhile, in order to best protect depositors, the Deposit Insurance of Vietnam needs to continuously improve professional activities, permanently carry out PR activities so that people can understand the deposit insurance policies, aiming at enhancing public confidence in the financial and banking system.
