Hong Kong Exco approves introduction of deposit insurance scheme for banks

HONG KONG (AFX-ASIA) - Hong Kong's Executive Council has approved in principle the proposal to implement a deposit insurance scheme in the banking sector.	    The Hong Kong Monetary Authority, however, said the deposit insurance scheme is not expected to be implemented before 2002 at the earliest.	    In a statement, the government said it has requested the HKMA to produce a set of final recommendations on how the scheme should be structured.	    Preliminary views for a deposit insurance scheme entail mandatory coverage for all licensed banks, with a coverage cap of 100,000 hkd initially to curtail moral hazard and keep insurance costs down.	    The statement said a risk-based premium should be further explored under the preliminary views.	    It said a separate legal entity will be set up to operate the scheme but the management structure should be as lean as possible.	    The statement said although there is wide support for the introduction of the scheme, some large banks remain opposed to it due to concerns over moral hazards, insurance costs and the fairness of allocation. 	    These issues will be addressed in the detailed design stage, the statement added.	    "These are legitimate concerns and should not be dismissed lightly. It is clear that keeping the cost as low as possible is a key issue. 	    "The HKMA has conducted further analysis on the level of premium required. There appears to be scope to bring down the premium from the 10 basis points previously indicated and to reduce the target fund size," chief executive officer Joseph Yam said.	    In addition, HKMA is looking at the feasibility of introducing a risk-based system to assess premium from the start. 

Related stock : (NIL)