Towards better deposit protection for Hong Kong

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Abstract

The traditional role of deposit insurance, or Deposit Protection Scheme (DPS) as the Hong Kong Government prefers to call it, has been mainly to prevent bank runs and thus to foster stability in the banking system. To the extent that this role has largely been taken over by the establishment of an effective lender of last resort which lends a hand to healthy banks hit by unfounded rumours, and by successive regulatory reforms which serve to prevent the deterioration of banks’ balance sheets, some have argued that Hong Kong does not need a deposit insurance scheme. Yet deposit insurance continues to serve important functions in a modern society. It is argued in this paper that one form of deposit insurance, namely one that provides full coverage for all demand deposits, 80 per cent coverage for all savings deposits, and 50 per cent for all other deposits, bring the most benefit to a modern society at least cost. The arguments will be laid out in the rest of this paper, as will the recommended charging scheme.
Original languageEnglish
Title of host publicationDeposit insurance: issues and evaluation
PublisherHong Kong Centre, Chartered Institute of Bankers
Pages39-51
Number of pages13
ISBN (Print)9627322131
Publication statusPublished - 1 Jan 1992

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