In response to a variety of feedback received on this proposal, mainly suggesting excluding different categories of corporate bodies and depositors from the Scheme, the MAS noted that the primary objective of the Scheme remained that of protecting small depositors. Insuring businesses would be consistent with this objective as small businesses may similarly not be in a position to make an informed decision as to which banks to place their deposits with.

In response to calls for clarification of the scope of the expansion, the MAS noted that the list of exclusions proposed in the consultation paper was on the basis that it would not be necessary to extend the Scheme coverage to entities such as insurance companies, investment companies, unincorporated entities, etc. However, the MAS has reconsidered the issue and finds that it might be simpler to insure all non-bank depositors in general and not provide for specific exclusions. This approach would be more even-handed, while mitigating concerns over moral hazard and costs by keeping the Scheme coverage limit at a reasonable level.

The MAS received feedback querying the limit proposed. In response, the MAS explained that in proposing deposit insurance coverage of S$50,000, which applies on the basis of per depositor per Scheme member, the MAS considered the need to provide adequate protection to small depositors while limiting the cost to Scheme members and depositors. The amount of S$50,000 would fully insure 91% of depositors covered under the Scheme. Beyond S$50,000, the incremental benefit is small and may not justify the cost. In response to feedback received, the MAS clarified that coverage is not aggregated for a group of related entities. Each entity will be separately insured up to S$50,000.

In response to concerns regarding the aggregation of deposits, the MAS explained that sole proprietorships and partnerships are not treated as legal entities distinct from their owners under the law. Therefore, ideally, the deposits of the sole proprietor should be aggregated with those of his business as he may commingle these deposits. In practice, Scheme members should have a single customer view. The MAS noted potential concerns over depositors setting up several partnerships with nominee partners for the purpose of maximising their deposit insurance protection and reasons that there is little incentive for this in practice.

In response to feedback suggesting separate coverage for monies held under the CPF Minimum Sum Scheme (CPFMS) and the CPF Investment Scheme (CPFIS) instead of aggregating them under a common S$50,000 limit, the MAS stated that the Scheme only insures monies placed with Scheme members and not a CPF member's full minimum sum maintained with the CPF. The MAS clarified that the deposit profile of Scheme members showed that the proposed deposit insurance coverage of S$50,000 would fully insure close to 100% of insured depositors who place CPF monies with Scheme members.

Most respondents to the public consultation were not in favour of a gross payout approach. The MAS stated that a gross payout approach is consistent with international practice and developments. It contributed to greater confidence and stability in a distressed situation as it is easier for depositors to understand and is operationally faster. In response to the concerns highlighted, the MAS clarified that the gross deposit insurance payout is not unfair as it does not extinguish the depositor’s liabilities to the Scheme member. A debtor or borrower will still have to repay his liabilities and the failure of his bank does not negate his obligation to do so. In practice, the MAS expects borrowers to continue to service their loans.

The MAS also clarified that the proposal does not mean returning the full deposit to the depositor. The amount returned will only cover that which is insured under the Scheme so to ensure that the Scheme is effective.

The majority of feedback received concerning this proposal did not support it compared to the status quo, where pledged deposits were totally excluded from coverage. The MAS has reconsidered its position and proposes to insure pledged deposits as with normal deposits, and pay out on the same gross basis. This means that deposits, whether pledged or not, will be aggregated and capped at the Scheme coverage limit, in determining the depositor's compensation. This will be simpler and easier to understand, which in turn will promote public confidence.

This change in position affects a further proposal in the consultation paper where the MAS had expressed its expectation that Scheme members would disclose clearly and upfront to customers, the implications on coverage under the Scheme from pledging their deposits, as well as the insured status of their deposits from time to time. With the change to insure pledged deposits as with normal deposits, no specific Scheme disclosure will be required for pledged deposits. Scheme members should still, however, disclose to customers any implication arising from the pledge.

Many respondents to the consultation paper sought clarification on whether accrued interest that has not been posted to the account of depositors would be insured. The MAS said that it would not. Accordingly, for the purpose of Scheme premium assessment and payout, Scheme members need only include the amount of accrued interest that has been posted to the accounts of depositors.

The MAS clarified that the transition coverage would take effect from the effective date of merger between two Scheme members.

The MAS clarified that the existing approach of taking into account the asset maintenance ratio of a Scheme member to determine its premium rate is appropriate. If proceeds from liquidation of a failed Scheme member's assets are insufficient to recover the amount of Scheme compensation that was drawn from the Scheme Fund to pay insured depositors, the Scheme Fund may suffer a loss. It is therefore reasonable for a Scheme member that maintains a higher level of eligible assets in Singapore relative to its insured deposit base to pay a lower premium rate, as it poses a lower risk of loss to the Scheme Fund.

The MAS intends to consult on proposed legislative amendments in the later part of 2010, with a view to implementing the revised Scheme in early 2011. The Scheme is independent of the government guarantee on deposits which expires on 31 December 2010.

Please click here to access an article entitled "MAS issues consultation paper on ‘Review of Deposit Insurance Scheme in Singapore".

Please click on the links below to access the relevant documents on this development, which are also available on the Monetary Authority of Singapore website: