Proposal to Review Cap of Coverage Per Depositor under Deposit Insurance

Mr Saktiandi Supaat asked the Prime Minister (a) what are the lessons from the closure of several US banks due to uninsured depositor runs; (b) whether the Monetary Authority of Singapore (MAS) will consider raising the $75,000 per depositor per bank coverage limit insured by the Singapore Deposit Insurance Corporation; and (c) whether MAS will consider additional bank regulation on top of existing capital adequacy and leverage ratio requirements, such as the reporting of mark-to-market asset losses.

Mr Don Wee and Mr Saktiandi Supaat had asked if the Monetary Authority of Singapore (MAS) will consider reviewing the deposit insurance (DI) coverage limit. Assoc Prof Jamus Lim also raised a related question for the next Sitting. Mr Supaat also asked about lessons from the closure of several US banks due to uninsured depositor runs and whether MAS will consider additional bank regulation on top of existing requirements. My response will cover the questions from all three Members for today's Sitting and the next and, if adequately addressed, Assoc Prof Jamus Lim may wish to withdraw his question.

Let me first make a basic point. DI is not the primary way in which we safeguard the interests of depositors, be they small or large. The recent stresses involving banks abroad remind us that a safe and resilient banking system is underpinned most fundamentally by a combination of pre-emptive safeguards. These include sound regulation, rigorous supervision, proactive cross-border cooperation and effective governance and risk management by the banks themselves.

So, we put a lot of store by these pre-emptive safeguards here in Singapore. They have contributed to MAS' financial sector oversight being assessed to be "amongst the best globally" by the International Monetary Fund (IMF) after the most recent Financial Sector Assessment Programme in 2019. DI complements these pre-emptive or ex-ante safeguards by providing a safety net for small depositors if banks were to fail.

International regulatory standard setting bodies, like the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS), will be carefully assessing the regulatory and supervisory implications arising from the recent banking stresses. MAS will be working with other regulators in these reviews in developing any needed regulatory responses to enhance the resilience of our banking system.

Our DI scheme aims to protect small depositors. Its adequacy as a safety net can be assessed by looking at the proportion of depositors who are fully insured – in other words, the depositors whose aggregated eligible deposits at a bank are within the DI coverage limit. The DI coverage limit in Singapore was last raised in 2019 from $50,000 to $75,000 per depositor per participating financial institution. At $75,000, it fully insured 91% of depositors covered under the DI Scheme at the time. With deposit growth since then, the percentage of fully insured depositors has fallen slightly to 89%.

Prior to the recent events, MAS had just concluded its latest, but regular review of the DI scheme, including both the DI coverage limit and also ways to ensure the operational efficacy of the DI scheme. MAS aims to present these proposals for public consultation by the end of June.

It is worth noting that we are not doing so in response to the recent stresses among some banks abroad and we should avoid overreacting to these events. Our principal objective should be to ensure that the pre-emptive safeguards, which I described earlier, are in good shape. We will also have to adjust the nominal coverage limit for DI from time to time. However, raising the proportion of deposits that are fully insured or, in other words, to cover larger depositors, is not without costs to banks, which will often ultimately mean costs borne by bank customers themselves. Each adjustment to the DI scheme, hence, has to be carefully considered.

I thank the Minister of State for his answer. Considering the recent bank failures overseas, what has been the impact on the insurance premiums which members of the Singapore Deposit Insurance Corporation (SDIC) will have to pay?

My second supplementary question is: should Singaporeans be concerned with the recent global failures of some of these banks overseas?

I thank the Member for his supplementary questions. With regard to the impact on premiums, there is no direct impact because the annual DI premiums are computed based on the amount of insured deposits held by banks and, for foreign bank branches, that asset-maintenance ratio, which varies with the amount of eligible assets and eligible pledged assets which they hold in Singapore.

With regard to the Member's second supplementary question, I would like to re-emphasise that the recent events, the bank stresses overseas, have highlighted the need for robust stress testing by banks as well as rigorous supervision by regulators.

Robust stress testing would, of course, help us to highlight any areas of vulnerability of individual banks by incorporating assumptions that are more reflective of a bank's risks. So, that is one. The second is that supervisors also need to assess the rigour as well as the competitiveness of banks' stress testing practices and then, after doing so, take the appropriate actions.

The banks also have to play their part. It is important for them to have robust and comprehensive contingency funding plans to handle liquidity problems as well as a good communication strategy, because these things matter when there are stresses on banks, particularly in times of stress.

So, it is essential that our banks regularly review their operational readiness to tap on available Central Bank liquidity facilities.

Thank you, Mr Deputy Speaker. First of all, I would like to declare that I work in a financial institution, in a bank. I have two supplementary questions, Mr Deputy Speaker.

First is in relation to the Minister of State's answer just now. I have a concern with regard to the Minister of State's view and risk assessment in terms of digital bank runs in the future. I think things have evolved significantly since the last FSAP, as the Minister of State mentioned, in 2019. Things have changed in the financial sector and things have evolved in terms of digitalisation in the banking sector. So, what is the Minister of State's view and risk assessment of digital banking runs or, as some people call it, "bank rush", in Singapore and in the region?

The second supplementary question, Mr Deputy Speaker, is in regard to raising the DI limit. I am actually mindful of considering the DI limits because it could have cost implications, as the Minister of State mentioned, for the banking sector as well as Singaporeans. If so, what is the cost of this increased DI coverage limit? Is the DI fund adequately sized in terms of the pre-funding? Also, can the Minister of State highlight – typically, in other countries, for example, the UK, it takes seven days for a depositor of a bank to get his or her money cash back. For Singapore, how many days would it take for a depositor to get his money if a bank goes bankrupt?

Thank you, Mr Deputy Speaker. Let me go through the different questions one by one.

With regard to the Member's question on digital banks, digital full banks are DI members of SDIC. In the initial restricted phase, they are limited to no more than $75,000 deposit per individual depositor. So, at that level, it will mean that all of the individual's deposits with a digital full bank would be fully covered. Digital wholesale banks are not subject to this cap but they cannot take retail deposits.

On the other question with regard to how fast can you make payments – SDIC's target is to make payments to insured depositors within seven days after the payout is triggered.

On the final question on the increase of the DI coverage limit, the DI scheme members pay regular premiums quite similar to what I explained earlier, to cover these deposits; and a higher coverage limit, of course, will require higher premiums. This adds naturally to the bank's overall costs, which they will have to manage themselves, and then, sometimes also pass on these costs to customers, given that they are commercial enterprises. They might do it through, perhaps, lower deposit rates, higher lending rates or other fees.

But I wanted to go into the final question, which is important, about the size of the DI fund. I would like to assure the Member and Members of this House that the DI fund is adequately sized. It is designed to meet a solvency standard of over 99.9%. What that means is that at this target fund size, the DI fund is able to make DI payments without losses at a confidence interval of 99.9%.

The target fund size is currently calibrated at $690 million and the DI fund has approximately $570 million in total assets and continues to be built up as scheduled, through annual premiums collected by member financial institutions.

The DI fund may also borrow from MAS for payments to insured depositors. But I wanted to quickly come back again to the principle of this: that in a safe, resilient banking system, it is underpinned by a combination of pre-emptive safeguards. I mentioned sound regulation, rigorous supervision, proactive cross-border collaboration, effective governance and the responsibilities of banks themselves.

DI complements these pre-emptive and ex-ante safeguards, by providing a safety net for small depositors, if banks were to fail. So, we will continue to conduct regular reviews. I said that we recently conducted the review prior to the events that happened to look at the DI coverage limits as well as the operational efficacy of the scheme and we will release the proposals to the public for public consultation by the end of June.