Deposit Protection Scheme Bill

The Chief Executive in Council has approved the Deposit Protection Scheme Bill for introduction into the Legislative Council on 30 April 2003. The Bill, which will be published in the Government Gazette tomorrow (17 April 2003), contains the Hong Kong Monetary Authority's (HKMA) proposals on how the deposit protection scheme (DPS) in Hong Kong should be structured.

Mr David Carse, Deputy Chief Executive of the HKMA said, "The establishment of a DPS will offer enhanced protection to small depositors and further strengthen the resilience of our banking system."

Taking into account comments received from the previous consultation exercises, the HKMA proposes that the DPS in Hong Kong should have the following major features:

• the DPS would be managed by an independent Deposit Protection Board, whose functions would be confined to assessment and collection of contributions, investment of funds and making payouts to depositors in the event of bank failures
• to keep the cost low, the Board would perform its functions through the HKMA, but the cost incurred by the HKMA would be recoverable from the funds of the DPS (DPS Fund)
• unless exemption is granted by the Board, all licensed banks would be required to join the scheme and pay contributions to the DPS Fund
• the coverage limit would be set at HK$100,000 per depositor per bank
• a DPS Fund - with a target fund size of 0.3% of the banking sector's total amount of protected deposits, which is equivalent to approximately HK$1.6 billion at the current level of deposits - would be built up in approximately five years
• a differential rate system based on the CAMEL ratings of individual banks would be used to assess contributions
• a depositor's liabilities to the failed bank would be fully netted off against his or her protected deposits in determining his or her entitlement to compensation under the scheme
• the decisions made by the Board and the HKMA under the DPS legislation would be appealable to an independent tribunal.

Mr Carse said that in developing the above proposals, the HKMA had carefully considered the views received from the banking industry, the Consumer Council and other interested parties. He believed that the proposals contained in the Bill struck an appropriate balance among the interests of various sectors of the economy, bearing in mind the need to keep the cost of the scheme low and the need to minimise moral hazard.

A fuller description of the above proposals, together with the Deposit Protection Scheme Bill, can be found in the brief issued to the Legislative Council today. The brief is available at the HKMA website (http://www.hkma.gov.hk).

For further enquiries, please contact:

Jasmin Fung, Manager (Press), at 2878 8246 or
Sylvia Yip, Manager (Press), at 2878 1687

Hong Kong Monetary Authority
16 April 2003

Brief (MS Word, 42KB)
Annex A part 1(PDF File, 153KB)
Annex A part 2(PDF File, 143KB)
Annex B (MS Word, 21KB)
Chart (PDF File, 39KB)
Annex C (MS Word, 25KB)
Annex D (MS Word, 112KB)
Annex E (MS Word, 41KB)
Annex F (MS Word, 22KB)