CONSULTATION PAPER
P004 - 2010
Feb 2010
Review of the
Deposit Insurance Scheme
in Singapore
REVIEW OF THE DEPOSIT INSURANCE SCHEME IN SINGAPORE FEBRUARY 2010
PREFACE
The deposit insurance scheme (“DI Scheme”) in Singapore was
implemented in 2006 with the primary objective of protecting small depositors.
The design of the DI Scheme in Singapore was guided by several
considerations which included the need to provide adequate protection for the
majority of small depositors while limiting the cost of DI to Scheme members
and depositors and preserving the incentives for large depositors to exercise
market discipline.
2 Since its incorporation, the Singapore Deposit Insurance Corporation
(“SDIC”) which administers the DI Scheme, has established systems and
processes to ensure depositors who are insured under the Scheme would be
compensated quickly in the event of a DI payout.
3 As part of its regular review, MAS together with SDIC, has reviewed
the DI Scheme to ensure that it continues to provide adequate protection to
small depositors. This consultation paper makes recommendations to amend
and enhance various features of the DI Scheme.
4 MAS invites interested parties to forward their views and comments on
the proposals made in this paper. We will assess and consider all comments
received before finalising the proposals and commencing the legislative
process, with a view to implementing the amendments to the DI Scheme in
2011. Electronic submission is encouraged. Please submit your written
comments by 26 March 2010 to:
Prudential Policy Department
Monetary Authority of Singapore
10 Shenton Way
MAS Building
Singapore 079117
Fax: (65) 6220 3973
Email: [email protected]
5 Please note that all submissions received may be made public unless
confidentiality is specifically requested for the whole or part of the submission.
MONETARY AUTHORITY OF SINGAPORE
REVIEW OF THE DEPOSIT INSURANCE SCHEME IN SINGAPORE FEBRUARY 2010
PROPOSED CHANGES TO THE DEPOSIT INSURANCE
(DI) SCHEME
1 SCOPE OF APPLICATION
1.1 Currently, participation in the DI Scheme is mandatory for all retail
deposit-taking institutions, i.e. full banks and finance companies in Singapore.
Given the primary focus of the Scheme on protecting small and individual
depositors, we assess it would still be appropriate to keep DI membership to
the full banks and finance companies in Singapore, which have access to
retail deposits. There will therefore be no change in membership of the DI
Scheme.
1.2 The DI Scheme currently covers Singapore dollar deposits in standard
current, savings and fixed deposit accounts up to the DI coverage limit. The
DI Scheme will continue to cover only these Singapore dollar deposits, and
will continue to exclude foreign currency deposits and structured deposits.
Although we had considered whether foreign currency deposits should be
covered, as the bulk of deposits held by individuals are denominated in
Singapore dollar, there is no need to extend DI coverage to include foreign
currency deposits.
1.3 Monies placed with a Scheme member under the CPF Investment
Scheme, CPF Minimum Sum Scheme, and Supplementary Retirement
Scheme will continue to be covered under the DI Scheme up to the DI
coverage limit (see Section 2 for details on how these accounts will be
aggregated).
E
XPANDING THE SCOPE OF COVERAGE
1.4 The DI Scheme currently only insures Singapore dollar deposits of
individuals and charities held with Scheme members. All deposits placed with
Scheme members by companies and partnerships are excluded from
coverage. We have reviewed this and considered that other depositors
including small businesses, like individual depositors, may also benefit from
some deposit protection to mitigate potential cash flow problems in the event
MONETARY AUTHORITY OF SINGAPORE 1
REVIEW OF THE DEPOSIT INSURANCE SCHEME IN SINGAPORE FEBRUARY 2010
of bank failure. We therefore propose to expand the scope of the DI Scheme
to insure the deposits of all non-bank depositors.
1.5 With this expansion, coverage will be expanded beyond deposits of
individuals and charities, and will now include other non-bank entities such as
sole proprietorships, partnerships, companies, and unincorporated entities
such as societies and associations. We will set out specific classes of non-
bank entities that continue to be excluded from DI coverage.
1
Proposal 1: To expand the scope of the DI Scheme to insure the deposits of
individuals and other non-bank depositors.
1.6 Currently, the DI Scheme insures Islamic deposits that are principal-
guaranteed such as Wadiah. We propose to insure Murabaha which has
been prescribed as a deposit under the Banking Act. To provide for any
products that may be prescribed as deposits in future, we also propose to
amend the DI Act to allow MAS to prescribe products as insured deposits
under DI.
Proposal 2: To amend the DI Act to allow MAS to prescribe products as
insured deposits, and to prescribe Murabaha as an insured deposit under DI.
R
AISING THE COVERAGE LIMIT
1.7 Currently, the DI Scheme insures Singapore dollar deposits that an
individual or charity maintains with a DI Scheme member (full bank or finance
company in Singapore), up to an aggregate of S$20,000 per depositor per
Scheme member. Today, this fully insures 83% of depositors covered under
the Scheme, lower than the 86% coverage when the Scheme was first
designed.
1
The excluded non-bank entities are merchant banks and finance companies in
Singapore, the equivalent of merchant banks and finance companies licensed in another
jurisdiction, as well as foreign central banks and monetary authorities, and foreign
governments.
2
REVIEW OF THE DEPOSIT INSURANCE SCHEME IN SINGAPORE FEBRUARY 2010
1.8 Based on our study of the depositor profile of Scheme members, we
propose raising the coverage limit from S$20,000 to S$50,000 per depositor
per Scheme member. This represents an increase in the coverage limit of 2.5
times, and would fully insure 91% of individual and non-bank depositors.
1.9 In addition, an individual’s monies placed with a Scheme member
under the CPF Investment Scheme (“CPFIS”) will continue to enjoy separate
and additional DI coverage from his standard savings, current or fixed
deposits maintained with the Scheme member. The coverage limit for CPF
monies will also be raised from the current S$20,000 to S$50,000. (See
Section 2 on the aggregation of CPF-related accounts under a common limit.)
1.10 Beyond S$50,000 coverage, the incremental benefit of DI is small and
may not justify the cost. As our objective remains that of small and individual
depositor protection, a coverage limit of S$50,000 would balance the objective
of depositor protection, with other objectives of limiting the cost of DI to
Scheme members and depositors and preserving the incentives for large
depositors to exercise market discipline.
Proposal 3: To enhance depositor protection by raising DI coverage limit
from S$20,000 to S$50,000 per depositor per institution.
3
REVIEW OF THE DEPOSIT INSURANCE SCHEME IN SINGAPORE FEBRUARY 2010
2 AGGREGATION ISSUES AND PAYOUT APPROACH
A
GGREGATION OF MONIES UNDER SOLE PROPRIETORSHIPS AND
PARTNERSHIPS
2.1 For the purpose of determining DI compensation in the case of an
individual who is also a sole proprietor, deposits of the individual in his own
name would be aggregated with his business deposits with the same Scheme
member, since operationally, he may commingle these deposits.
2
However,
for a partnership, it could be difficult to separately identify an individual’s share
of deposits as partner, especially in the case of larger partnerships, and to
aggregate them with his personal deposits. Hence, we propose to treat a
partnership as a single entity for the purpose of DI compensation.
3
AGGREGATION OF CPF MONIES UNDER COMMON DI COVERAGE LIMIT
2.2 An individual’s monies placed with a Scheme member under the CPF
Investment Scheme (“CPFIS”) enjoys a separate DI coverage limit
(proposed to be raised to S$50,000) from his standard savings, current or
fixed deposits maintained with the Scheme member. His deposits under the
CPF Minimum Sum Scheme (“CPFMS”) is currently aggregated with his other
standard savings, current or fixed deposit accounts with the Scheme member.
4
2.3 To streamline the DI coverage for CPF-related accounts, we propose
to aggregate an individual’s CPFMS deposits with his monies in the CPFIS,
under a common S$50,000 limit.
4
The individual’s deposits in standard
2
For instance, an individual with S$30,000 in his personal savings account and
another S$40,000 in his sole proprietorship account with the same Scheme member, would
be insured up to an aggregate of S$50,000 with that Scheme member.
3
For instance, assume a partnership of three partners (A, B, and C) with a deposit of
S$60,000 with a Scheme member. “A” also maintains S$30,000 with the same Scheme
member in a personal savings account. In the event of DI payout, the partnership will be
entitled to compensation of S$50,000 (as a single entity), and “A” will receive S$30,000 in his
own personal capacity. The deposit of S$60,000 placed by the partnership will not be split
such that Partner B and C each receives S$20,000 (assume equal allocation among the three
partners) and Partner A S$50,000 (comprising S$20,000 and S$30,000).
4
For instance, assume an individual has S$20,000 with a Scheme member under
REVIEW OF THE DEPOSIT INSURANCE SCHEME IN SINGAPORE FEBRUARY 2010
savings, current or fixed deposit accounts with the Scheme member will be
aggregated under a separate S$50,000 limit. There is no significant impact
on DI coverage of CPF accounts arising from this change.
SRS MONIES
2.4 Currently, deposits placed with a Scheme member under the
Supplementary Retirement Scheme (“SRS”) are insured, as with other
deposits that a depositor may maintain in a normal standard savings, current
or fixed deposit account with the Scheme member. We will amend the DI Act
to clarify that monies held in a SRS account with the SRS operator that have
not been utilised for investments would also be insured under the DI Scheme.
This would be consistent with DI coverage of monies placed under the CPFIS
which have not been invested. SRS monies not invested and remaining in an
SRS account will be aggregated with the individual’s standard savings,
current or fixed deposits under a common DI coverage limit.
Proposal 4: In computing coverage for a sole proprietor, to aggregate
deposits in his own name and as sole proprietorship; and for partnerships, to
treat the partnership as a single entity.
Proposal 5: To streamline the DI coverage for CPF-related accounts, by
aggregating an individual’s CPFMS deposits with his monies in the CPFIS
under a common S$50,000 limit.
Proposal 6: To amend the DI Act to clarify that SRS monies not invested and
remaining in SRS accounts are insured under DI.
P
AYOUT APPROACH
2.5 Currently, in determining the compensation payable to an insured
CPFMS, S$20,000 under CPFIS and S$50,000 in a savings account with the same Scheme
member. He will be entitled to DI coverage of S$50,000 in his savings account and S$40,000
for his CPF monies, which comprises amounts under the CPFMS and CPFIS. Previously, his
savings deposit and CPFMS deposit would be aggregated, while his CPFIS monies are
separately covered.
5
REVIEW OF THE DEPOSIT INSURANCE SCHEME IN SINGAPORE FEBRUARY 2010
depositor, liabilities of the depositor to the Scheme member would be offset
against his deposits with the Scheme member. Such an offsetting approach
is consistent with Singapore insolvency law where mutual claims are offset
and settled on a net basis.
2.6 We considered an alternative where an insured depositor is paid the
gross amount of his deposits up to the DI coverage limit, without first netting
off his liabilities to the Scheme member. This “gross payout approach” has
several advantages. It could achieve a faster payout for depositors compared
to the current approach, as there will be no need to determine the amount of
the depositor’s liabilities to the Scheme member to be offset against their
deposits to that Scheme member. Furthermore, a gross payout is more easily
understood and provides depositors with maximum liquidity compared to an
approach with netting. We propose to adopt a gross payout approach to
provide greater certainty and clarity in depositor compensation at the time of a
DI payout.
2.7 The gross payout approach for DI does not mean the depositor’s
liabilities to the Scheme member are written off as the depositor remains
responsible for any liabilities owed to the Scheme member. The liquidator
would be empowered to recover this amount from the depositor. As this
proposal involves a departure from general insolvency law, MAS is also
seeking the views of other Government agencies with responsibilities for
corporate law and the legal framework.
Proposal 7: To adopt a gross payout approach for the purpose of DI payout,
such that an insured depositor is paid the gross amount of his deposits up to
the DI coverage limit, without first netting off his liabilities to the Scheme
member.
PLEDGED DEPOSITS
2.8 Depositors may pledge their deposits to a Scheme member as
collateral to secure other facilities provided by the Scheme member such as a
loan. Currently, once the deposit is pledged, the full amount of the deposits
would not be insured under DI. This is regardless of whether the depositor
has drawn down fully on the facility for which he has pledged his deposit.
2.9 We propose to amend this to insure the amount of a pledged deposit
6
REVIEW OF THE DEPOSIT INSURANCE SCHEME IN SINGAPORE FEBRUARY 2010
that (i) is not set aside by the Scheme member in respect of debt owed by the
depositor or loan/margin facility granted to depositors; and (ii) may be
withdrawn by the depositor. With this proposed change, pledged deposits in
excess of a depositor’s drawn-down facility with a Scheme member would still
be insured under DI.
5
This proposed approach of insuring the free monies in
pledged deposit accounts would be consistent with existing DI treatment for
deposits that are subject to specific set-off agreements.
2.10 We expect Scheme members to disclose upfront and clearly to
customers, the implications on coverage under DI from pledging their
deposits, as well as the insured status of their deposits (including the status of
facilities they are pledged against) from time to time. Such disclosure could
be done, for example, in periodic account statements sent to their customers.
Proposal 8: To insure the amount of a pledged deposit that is not set aside
by the Scheme member in respect of debt owing by the depositor, and that
may be withdrawn by the depositor.
We invite comments and feedback on how the proposed approach could be
implemented with regard to specific forms of pledged deposits, set-off
agreements and other terms and conditions of such deposits that Scheme
members may have.
ACCRUED INTEREST
2.11 The DI Scheme currently insures accrued interest. In practice,
Scheme members may not post interest that is due to depositors on a daily
basis and so we propose to clarify that DI coverage will include interest that
has been posted to the accounts of depositors.
5
For example, a depositor may have pledged a deposit of S$50,000 to the Scheme
member for a credit facility of S$60,000. Currently, the whole deposit of S$50,000 will not be
insured under DI. With the proposed changes, if the credit facility is not drawn upon and the
depositor may withdraw money from his deposit account freely, his deposit of S$50,000
remains insured under DI. If he has drawn down a loan amount of S$20,000 and can
withdraw the excess of his deposit freely, S$30,000 (i.e. S$50,000 minus S$20,000) will
remain insured under DI.
7
REVIEW OF THE DEPOSIT INSURANCE SCHEME IN SINGAPORE FEBRUARY 2010
Proposal 9: To clarify that accrued interests that have been posted to the
accounts of depositors are insured under DI.
TRANSITION DI COVERAGE FOR MERGERS/ACQUISITIONS
2.12 A Scheme member may on occasion be merged with or acquired by
another Scheme member. In order to provide greater certainty as to the
coverage of deposits maintained with each of the merging Scheme members,
we propose that deposits that are insured before a merger/acquisition remain
insured for one year after the transaction and for extensions to be given by
the Minister under exceptional circumstances. This means that deposits
previously insured separately in each of the merging Scheme members, will
remain separately insured up to the coverage limit, and will not need to be
aggregated for a period of one year from the date of the merger.
Proposal 10: To amend the DI Act such that deposits that are insured before
a merger/acquisition of a Scheme member remain separately insured for one
year after the transaction.
8
REVIEW OF THE DEPOSIT INSURANCE SCHEME IN SINGAPORE FEBRUARY 2010
3 DI FUND AND DI PREMIUMS
T
ARGET FUND SIZE AND PREMIUMS
3.1 The DI Scheme is currently pre-funded by annual premium
contributions from Scheme members. The target fund size is 30 basis points
(or 0.30%) of the aggregate insured deposit base of Scheme members.
6
This
took into account loss estimates derived from the model of the DI Scheme
which incorporated estimates of the probability of default and loss given
default of each Scheme member, and their default correlations.
7
3.2 Based on a re-run of the model and the current profile of Scheme
members, we assess that a target fund size of 30 basis points (or about
S$270 million based on proposed coverage) remains appropriate. In the
event that the DI Fund is insufficient for payout, the SDIC may collect
additional premiums or borrow.
3.3 Currently, the premium rates are based on the incorporation status of
Scheme members and the level of assets that they maintain in Singapore to
back up their insured deposits.
8
Each Scheme member pays annual
premiums of 3bps (0.03%) to 8bps (0.08%) of their insured deposit base, with
the DI Fund expected to be built up over 10 years (i.e. by 2016) with an
average pricing of 3bps per year.
3.4 Based on our estimates, the proposed increase in scope of DI
coverage should not have a significant impact on Scheme members as a
whole, in terms of costs. Nevertheless, gross premiums are likely to be higher
with the proposed changes as the amount of insured deposits has increased
significantly. We therefore propose to extend the build-up period of the DI
Fund by another four years, from the original target date of 2016 to 2020 so
9
6
This amounted to S$120 million then.
7
Details of the model are in the Technical Addendum to the Consultation Paper on the
Deposit Insurance Scheme, 6 Aug 2002.
8
At a minimum, Scheme members incorporated outside Singapore are required to hold
eligible assets in Singapore against each dollar of insured deposit. Such asset maintenance
requirements, together with priority order of claim accorded to insured deposits, make it
possible to keep the DI Fund modest.
REVIEW OF THE DEPOSIT INSURANCE SCHEME IN SINGAPORE FEBRUARY 2010
that the annual premium rates applicable to Scheme members can be
lowered (see table below) and the overall increase in gross premiums will be
moderate. This extension in build-up period will moderate the annual gross
premiums payable by Scheme members and limit the cost impact on Scheme
members and depositors.
Table: Revised Annual Premium Rates
10
Locally-
incorporated /
High AM branch
9
Medium AM
branch
Low AM branch
Existing rates 3bps 4bps 8bps
Proposed rates 2bps 3bps 7bps
Proposal 11: To revise the rates for annual premium contributions to
between 2bps (0.02%) and 7bps (0.07%) of insured deposit base and extend
the fund build-up period by 4 years.
9
High AM refers to asset maintenance ratio of more than 5. Medium AM refers to ratio
of more than 2 but not more than 5. Low AM refers to AM ratio of 2 or less.
REVIEW OF THE DEPOSIT INSURANCE SCHEME IN SINGAPORE FEBRUARY 2010
SUMMARY OF PROPOSALS
Proposal 1: To expand the scope of the DI Scheme to insure the deposits of
individuals and other non-bank depositors.
Proposal 2: To amend the DI Act to allow MAS to prescribe products as
insured deposits, and to prescribe Murabaha as an insured deposit under DI.
Proposal 3: To enhance depositor protection by raising the DI coverage limit
from S$20,000 to S$50,000 per depositor per institution.
Proposal 4: In computing coverage for a sole proprietor, to aggregate
deposits in his own name and as sole proprietorship; and for partnerships, to
treat the partnership as a single entity.
Proposal 5: To streamline the DI coverage for CPF-related accounts, by
aggregating an individual’s CPFMS deposits with his monies in the CPFIS
under a common S$50,000 limit.
Proposal 6: To amend the DI Act to clarify that SRS monies not invested and
remaining in SRS accounts are insured under DI.
Proposal 7: To adopt a gross payout approach for the purpose of DI payout,
such that an insured depositor is paid the gross amount of his deposits up to
the DI coverage limit, without first netting off his liabilities to the Scheme
member.
Proposal 8: To insure the amount of a pledged deposit that is not set aside
by the Scheme member in respect of debt owing by the depositor, and that
may be withdrawn by the depositor.
We invite comments and feedback on how the proposed approach could be
implemented with regard to specific forms of pledged deposits, set-off
agreements and other terms and conditions of such deposits that Scheme
members may have.
Proposal 9: To clarify that accrued interests that have been posted to the
accounts of depositors are insured under DI.
11
Proposal 10: To amend the DI Act such that deposits that are insured before
REVIEW OF THE DEPOSIT INSURANCE SCHEME IN SINGAPORE FEBRUARY 2010
12
a merger/acquisition of a Scheme member remain separately insured for one
year after the transaction.
Proposal 11: To revise the rates for annual premium contributions to
between 2bps (0.02%) and 7bps (0.07%) of insured deposit base and extend
the fund build-up period by 4 years.
