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What is the role of a deposit insurer during a crisis?
100 out of roughly 200 countries over the world have deposit insurance regime. A report made in 2005 by the International Association of Deposit Insurers (IADI) shows that with the exception of Portugal and Cyprus, almost the countries under the study have experienced at least one crisis or failure of individual banks.
Whether with or without a deposit insurer, all nations have to face the time when credit institutions get into trouble and an agency must be in charge to receive and resolve failed banks. In developed economies like the US, Canada, Japan, Korea, the deposit insurer takes responsibility of receiving and resolving failures or difficulties of credit institutions. The reason is that through the direct measures of finance, supervision and management to best solve the problems of insured institutions based on the market signals, the benefits of depositors and the safety of financial system are protected with the principles of fair loss sharing and diminishing, tax-payers dependence minimizing.
DIV serves as a vital financial institution which always accompanies credit institutions and lies behinds their success as well as the exciting development of the banking sector. This helps to enhance public confidence in the financial market and realize the government’s public policies. How has DIV fulfilled its task in recent turbulent time for Vietnam’s financial market?
DIV is assigned by the Government to protect depositors and cooperate with relevant agencies to maintain the safety of the banking system. The violent development of the banking sector in specific and the financial market of Vietnam in general, together with the changes of global financial market over recent time actually have swollen risks and broadened gaps among risks of every credit institutions.
In that context, it is vital to ensure the macroeconomic stability and the system safety. Besides the data reported by the insured institutions and supplied by the State Bank of Vietnam (SBV), DIV also collects information from the Credit Information Centre (CIC), credit rating organizations and other sources for the sake of risk analysis and assessment. DIV always strives to improve supervision quality conformed to international practices, which suit Vietnam’s actual conditions. Moreover, DIV seeks to diversify professional products with focus on early detection and warning.
For instance, we have conducted research projects on Risk-based Premium, Receivership and Resolution, Special Funds for Financial Assistance in order to create an equal competitive environment for banking operation and an active mechanism of risk prevention and minimization.
One of DIV’s key functions is to constantly supervise all insured institutions to detect and prevent risks during early stages. Could you give some comments on the supervision results of 2008?
Currently, DIV provides supervision to 76 commercial banks, 10 non-bank credit institutions, roughly 1000 central and local people’s credit funds. Based on the results of risk analysis and supervision, DIV gave prompt warnings to insured institutions which had poor performance, rising bad debts or safety rules violation, then provided measures to help them correct the situation. On that basis, DIV has been accomplishing the reporting system in assistance to the macroeconomic management of the government: Monthly report on Banking and Finance, Report to the Advisory Board of National Financial and Monetary Policy…
However, DIV’s protection policy has up to now been limited to individual depositors and for VND only. This means other groups of depositors and investors are not beneficiaries of the DI policy, then their legal benefits are not equally protected. Do you think that after nearly 10 years of operation, should DIV now be capable to extend its beneficiary range?
Under existing regulation, the insured objects are VND-denominated accounts of individuals, households, co-operative groups, private companies and partnerships at insured institutions, excepting for: deposit of individuals who own over 10 per cent of charter capital of the insured institutions, or over 10 per cent of equity capital with voting right; deposit of members of the Executive Board and Supervisory Panel, (General) Director, and Deputy (General) Director of the insured institutions; deposit as guarantee for a depositor’s obligation; deposit for buying notes (except for some notes stipulated by the SBV).
It is a fact that some part of depositors and investors at special functioned institutions such as postal saving service companies, life insurance companies, trust companies for stock investment… are not protected by DI policy. In the coming time when the National Assembly puts DI law into discussion, we will make proposal on extending the DI beneficiary. On our part, we affirm that after 9 years of operation, DIV have the right condition and capacity to best protect legal benefits of depositors, contributing to maintain the stability of the financial system.
