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Necessity, meaning of the Law on Deposit Insurance
In the development of financial markets in general and banking system in particular, the continuous improvement of legal bases to ensure a synchronized legal framework for facilitating the effective functioning of financial institutions is an objective requirement. The first legal basis for deposit insurance in Vietnam and the establishment of Deposit Insurance organization can be traced back to the Clause 1, Article 17 of the 1997 Law on Credit institutions which stipulated that “Credit institutions shall be obligated to participate in deposit guarantee or insurance organization; guarantee or insurance limit shall be set by the government.”
To implement this stipulation, since 1999 the Government, the Prime Minister and the SBV have promulgated many legal documents as legal bases to promote deposit insurance activities. The enactment of the Law on Deposit Insurance has resulted from the needs of further strengthening legal regulations on deposit insurance; enhancing validity of related legal documents, making sure deposit insurance is governed by law. Besides, the newly passed Law clearly identifies the legal status of the Deposit Insurance of Vietnam (DIV), thus, avoiding overlaps in tasks between different organizations. It also clearly defines state administration on deposit insurance and state administrative bodies in order to make deposit insurance more effective.
The Deposit Insurance Law is consistent with other laws related to monetary and banking activities which have been amended and supplemented recently such as 2010 the State Bank of Vietnam Law, 2010 Credit Institutions Law, 2005 Enterprises Law, 2005 Investment Law, and 2010 Consumer Protection Law.
In the meantime, the promulgation of the Law on deposit insurance is necessary to deal with shortcomings of current legal regulations on deposit insurance, enhance the validity of the legal framework and make deposit insurance more effective in order to better safeguard the legitimate interests of depositors and contribute to maintaining the stability of the banking system.
Building the Law on deposit insurance had to ensure:
(i) Legalizing standpoints, guidelines and policies of the Party and the State, reflecting particularities of Vietnam’s banking industry and conform to Vietnam’s political institution stipulated in the 1992 Constitution.
(ii) Complying with socio-economic conditions of Vietnam, especially with those related to the development of money and capital markets, the banking system, and the awareness level as well saving behaviors of people.
(iii) Inheriting appropriate contents of legal regulations on deposit insurance which have been demonstrated over last 10 years, ensuring the inheritance in administration and, at the same time, surmounting drawbacks and shortcomings of the current legal documents pertaining to deposit insurance.
(iv) Learning international experience in developing deposit insurance legislation, making reference to Core Principles for Effective Deposit Insurance Systems to make sure that Vietnam’s Law on Deposit insurance is compatible to some extent with international standards.
(v) The consistency, uniformity and effectiveness of banking legislation; facilitating the effective coordination among different players of National Financial Safety Net.
Main contents of Deposit Insurance
Law on deposit insurance consists of 7 Chapters with 36 articles focusing on:
- State administration on deposit insurance
- Operational model of the Deposit Insurance Organization
- Insured objects.
- Investment of the Deposit Insurance Organization
- Deposit insurance premium and coverage limit
- The date when insurance payment duty arises
With the above contents, Deposit Insurance Law inherits suitable stipulations of the current legal documents, ensuring inheritance in administration and simultaneously, remedied drawbacks, shortcoming of the current legal framework for deposit insurance. The Law also ensures the consistency, uniformity and effectiveness of the banking legislation, facilitating the effective coordination among different players of National Financial Safety Net. In addition, as was built based on making reference to international experience and Core Principles for Effective Deposit Insurance Systems, the Law is compatible to some extent with international standards.
The State bank’s implementation of the Law on Deposit insurance
To implement the Law on Deposit Insurance effectively, the SBV is and will be carrying out many activities until the Law take effect on January 1, 2013, as below:
a) In association with the DIV, introducing the Law on Deposit Insurance: (i) holding conferences on introduction of the Law in the North, Center and the South with the participants coming from the SBV, DIV, commercial banks, foreign banks’ branches, people’s credit unions and micro-finance institutions; (ii) organizing show-talks to exchange knowledge and experience on deposit insurance based on related legal stipulations; (iii) issuing papers, questions & answers regarding Deposit Insurance Law suitable to various objects in printed forms and via newspapers, radio, TV, websites etc…; (iv) organizing competitions to learn about the Law for the affiliated units of the DIV and credit institutions.
b) Presiding over building documents providing guidelines on the implementation of the Deposit Insurance Law
The principle of implementing the Deposit Insurance Law is that the provisions of the Law which are already clear and specific need to be applied as soon as the Law comes into effect. For those provisions that require guidelines provided by the Government, Prime Minister and the SBV, it is necessary to promulgate the guiding documents so that the provisions can be applied immediately when the Law becomes valid.
Tasks related to building documents providing guidelines on the implementation of the Law on Deposit Insurance consist of listing out necessary guiding documents, setting the timeline for these documents to be submitted for promulgation, assigning different organizations, agencies to preside over building the documents. These organizations, agencies are responsible for developing the guiding documents in coordination with other related organizations in accordance with applicable legal document promulgation procedures, ensuring the quality and progress of their work matching the date of January 1, 2013 when the Law takes effect.
Based on preliminary review, the list of the guiding documents is envisaged to include 01 Governmental Decree, some Decisions by the Prime Minister and circulars of the SBV, the Ministry of Finance. Specifically, these documents will focus on:
1. Clause 13, Article 13 - Rights and obligations of the deposit insurance organization, Law on Deposit Insurance: “To participate in the process of special control over insured institutions as stipulated by the State Bank; to participate in the management and liquidation of assets of insured institutions as regulated by the Government”.
2. Clause 2, Article 34- Obligation of providing information of the State Bank:” The State Bank shall be obligated to enable the deposit insurance organization to access data related insured institutions as stipulated by the Government”.
3. Clause 1, Article 20:”The Prime Minister shall set the frame of deposit insurance premiums on the basis of the proposal of the State Bank”. It is planed that the Prime Minister shall issue a decision on the frame of deposit insurance premiums.
4. Clause 2, Article 24: “The Prime Minister shall set the Insurance limit for each period of time on basis of the proposal of the State Bank”
5. Clause 1, Article 29: “The deposit insurance organization is a financial institution established and assigned functions and duties by the Prime Minister”.
6. Clause 2, Article 20: “Pursuant to the premium frame, the State Bank shall determine specific insurance premiums for insured institutions on the basis of assessment and classification of those insured institutions.”
2. Clause 1, Article 32: “The Ministry of Finance shall preside over stipulations of the financial regime of the deposit insurance organization in coordination with the State Bank”.
With the active and prompt implementation of the aforementioned tasks, it is strongly believed that the Law will bring about positive effects, contributing to the stability of credit institutions, ensuring the safe and sound development of the banking industry.
Legal Department – State Bank of Vietnam
(DIV bulletin No 21)
(Translated by Vu Hoang)
