Consultancy Study on Enhancing Deposit Protection in Hong Kong

The Hong Kong Monetary Authority (HKMA) has today （3 April） appointed Arthur Andersen Hong Kong as the consultant to carry out a study on enhancing deposit protection in Hong Kong.

The Study will consider the relative costs and benefits of an explicit deposit insurance system, alternative means of deposit protection and the status quo, and produce a set of recommendations on which of the possible options for deposit protection would best meet the needs of the Hong Kong banking system and its depositors. The Study is expected to be completed by the end of June this year. The findings together with the recommended option will be subject to a full public consultation before any decision is made on this important matter.

"The banking environment has become more volatile as evidenced during the Asian financial crisis", said Mr David Carse, Deputy Chief Executive of the HKMA, "Together with the planned market reforms to increase competition in the banking sector, this is an opportune time to focus on this issue."

Deposit protection was last publicly debated in 1992, following the failure of BCCHK Limited and a number of contagious bank runs in 1991. At that time, the proposal for establishing a deposit protection scheme was rejected mainly because of cost, fairness and effectiveness concerns. The Banking Sector Consultancy Study undertaken in 1998 and the international trend in providing explicit deposit protection have highlighted the need to revisit this issue, with the aim both of improving consumer confidence and of enhancing the general stability of the banking sector.

Hong Kong Monetary Authority
3 April 2000