The depositors are fully protected by risk minimizer deposit insurance system
"The National Assembly should soon promulgate the Law on Deposit Insurance - "bodyguard" of depositors and banks." It was a "slogan" of Hoang Thanh Tung (Banking Academy). It was also the desire of 100% of entries, of which many people proposed that full protection of depositors should be considered to be core. Do Thuy Nga (Vietcombank) wrote: “It is like a "safety valve" for the national monetary and financial system, but deposit insurance activities have been based on the inadequate legal framework for more than 10 years”. Mr. Truong Gia Thuan (An Giang) said that the increasing role of deposit insurance in the trend of global integration required the solution to better improve DIV activities for the following phase, institutionalize DIV activities by Law as well as ensure that deposit insurance agency was relatively independent from the State management agency.
To best protect depositors, many people confirmed that the deposit insurance system in Vietnam should be designed according to the risk minimizer model. Mr. Phan Duc Quang (Hung Yen) wrote: "When the deposit insurer is organized following a suitable model and has its rightful place in the national financial system, it has enough power and capacity to effectively perform the role in protecting the interests of depositors and the stability of the national financial system”. Referring to that argument, Mr. Quang suggested: "In my opinion, the best deposit insurance model in Vietnam is now the risk minimizer. This model allows DIV to manage risk comprehensively, ensure the safe and sound operation of insured institutions". "Preventing a mass withdrawal of deposits will be more efficient due to the risk minimizer model. This model is evaluated to be the most advanced, preeminent as well as popularly applied in the world", emphasised Ho Viet Lam - Ca Mau.
In addition to protecting the interests of depositors, Dau Phan Hoang Yen (Dac Lac) stated that the risk minimizer deposit insurance agency cooperated with state agencies and the central bank in supervision activities and risk assessment of banks and financial institutions, thus contributed to ensuring the safety and normal operation of the national monetary - financial system; deposit insurance premiums based on the credibility of the credit institutions; receivership and resolution of failed insured institutions; granted investment business professional activities in order to secure capital development to enhance financial strength, reduce the dependence on the Government's budget. "Deposit insurance is not only an ultimate solution to protect the interests of depositors when deposit taking institutions are in trouble and go bankrupt, but also a measure to prevent and limit the possibility of collapse", emphasized Mr. Bui Dai Dung (Economics University, Hanoi National University).
Financial institutions can not be insured due to the lack of a big capital
As a student studying in the United States, Pham Thi Ngoc Anh raised the issue: “According to international practices, the ratio of deposit insurance fund to the total insured deposits ranges between 2.5% - 3%, while this ratio only stands at about 1% in our country, quite low compared to other countries”. Ngoc Anh suggested: "The deposit insurance system should have a funding mechanism, and have methods to mobilize additional financial reserves for liquidity purposes when necessary". Ms. Nguyen Thi Bich Hong (Vietnam-Russia Joint Venture Bank) said that in the vast majority of developed countries, the deposit insurer was organized following the company model and allowed to conduct profit-seeking activities. Ms. Hong explained that: "seeking profit through investment and business activities also contributes to improving financial capability to ensure adequate capacity to handle risks without Government’s help. This also means that it creates the basis for raising the coverage, expanding the covered subjects and overcoming the current limitations on the financial capacity of deposit insurance institutions". Dang Thu Thuy - Ho Chi Minh City said: "The deposit insurer’s financial capacity can not depend on the Government’s meager budget, but its financial capacity must be strengthened from its main activities. Therefore, the deposit insurer should have and well perform profit-seeking investment function to ensure the ability to handle risk without the Government’s regular support". Mr. Phung Ba Nguyen (Nghe An) said that the regulations on other functions of the deposit insurer were also based on strong financial background. He emphasized that "The financial institutions can not be insured due to the lack of a big capital".
Should foreign currency deposits be insured?
There were different opinions on this content in the entries. Several people thought that if only VND deposit insurance would not encourage foreign currency to be deposited in banks. Foreign currency deposit insurance would help credit institutions to attract a large amount of foreign currency deposits from people’s savings as well as encourage overseas Vietnamese to send money back to Vietnam for investment and national development. In contrast, some people argued that foreign currency deposit insurance could affect original currency values as well as state management on foreign exchange. This was an issue worthy of concern and need get answers from policymakers.
Risk minimizer and risk-based deposit insurance premium for credit institutions
Currently, insured institutions must pay an annual deposit insurance premium equal to 0.15% of the average deposit balance of insured deposits. "I think that the flat rate premium is not really fair treatment between the credit institutions operating business well with strong financial capacity and credit institutions having bad business activities, high risk of bankruptcy", said Mr. Nguyen Quoc Viet - Binh Dinh. With the same points of view, most people have proposed that the Law on Deposit Insurance soon passed by the National Assembly should stipulate the deposit insurance premium based on a differential premium mechanism. Deposit insurance premium is low when risk is low and vice versa. Ms. Le Thi Le Dung (Hanoi) said that the premium charged method sent out a signal to know how credit institutions operated. If those credit institutions were in trouble, they would be urged to try to overcome that situation.
However, Ms. Bui Thi Hong Linh (Ho Chi Minh) said that determining the risk-based deposit insurance premium was quite complicated. To do so, it was necessary to set the risk assessment standard of the insured institutions. “Therefore, in addition to clear stipulation in law, it needs to develop an effective supervision and examination mechanism in order to evaluate customers exactly to form a basis for determining deposit insurance premiums”, added Ms. Linh.
Raise deposit insurance coverage
Mr. Nguyen Toan Thang - Hai Phong said: “The maximum deposit insurance coverage for all deposits (including principal and interest) of an individual at an insured institution of VND 50 million is inconsistent with social and economic conditions and this is one of the causes for reducing efficiency in stimulating capital sources mobilized from the population". Mr. Doan Quang Trung (Banking University of Ho Chi Minh City) analysed: “The reimbursement of VND 50 million at the time of establishment (2005) was equivalent to nearly 5 times per capita GDP and protected about 90% of the depositors. However, the current per capita GDP of Vietnam has increased to about USD 1,100, therefore deposit insurance coverage must be increased. In addition, increasing the coverage is consistent with general trends of the world to deal with economic fluctuations. The maintenance of high deposit insurance coverage limits money flows sent to other countries, especially when the economy is in crisis and contributes to improving the competitiveness of domestic banks”.
With these same points of view, many people proposed that the coverage might be considered adjusting in each period. Le Thi Ngoc Oanh (Hanoi) wrote: "The Law on Deposit Insurance should permit adjustment of deposit insurance coverage in certain conditions such as: (1) the occurrence of bank runs, (2) high inflation rate for several years, (3) devaluation of original currency for a long time, high depreciation rate, (4) less than 80% of the depositors at credit institutions; (5) the occurrence of financial crisis”.
The message of confidence
According to Mr. Bui Khac Son – DIV’s General Director, the competition helped to raise public awareness of deposit insurance policies and the implementation of this policy in Vietnam. People’s expectations and aspirations for the deposit insurance policy will be useful reference for policymakers in building the Law on Deposit Insurance. The competition sent out the message for enhancing public confidence in the banking and financial system through deposit insurance policies. The message received warm response, profound sympathy from the public enthusiastically participating in the competition.
Please end this article with the comment by Franklin D. Roosevelt, the 26th President of the United States– a country with the earliest and effective deposit insurance system in the world: "After all, there is an element in the readjustment of our financial system more important than currency, more important than gold, and that is the confidence of the people" (This was quoted by Dau Phan Hoang Yen - Dac Lac when she analysed the importance of confidence in her entry).