Good morning, Singapore. Didn't we all sleep more soundly last night now that all bank deposits in Singapore are guaranteed by the canny Singapore government and its billions of dollars of reserves?
It was so refreshing to see the Straits Times front page this morning soberly reporting the government guarantee, sticking to what the Finance Ministry and the Monetary Authority of Singapore said.
So the Monetary Authority of Singapore (MAS) has to eat its words. Only nine days ago, it was firm as a rock in its defence of the 20,000 Singapore dollar (about $13,200) deposit insurance policy funded by the banks and not by the government. "A higher coverage limit will come with higher cost which may be passed on to depositors," MAS said on October 8.
Oops, Singapore's finance minister has also had to eat his words! He also said the same thing the same day! If banks are made to increase the guaranteed amount from 20,000 Singapore dollars, it
will mean higher costs, ultimately borne by the customer. "So I would
say this system is better: regulate the banks well, keep deposit
insurance cost low", he said.
Bless them, they had second thoughts.
Right move…
We should be grateful that Singapore Finance Minister Tharman Shanmugaratnam and MAS did finally see the light — and the government decided to guarantee all bank deposits, in Singapore dollars and foreign currencies.
We can depend on the government to do the right thing, even if sometimes it takes a bit of time.
The Finance Ministry and the Monetary Authority of Singapore (MAS) said in a joint statement yesterday "Singapore’s banking system continues to be sound and resilient" but "other jurisdictions" (countries lah!) had guaranteed bank deposits. So the Singapore government was doing the same "to avoid an erosion of banks’ deposit base and ensure a level international playing field for banks in Singapore". In other words, it took action to prevent an outflow of money from Singapore.
… Following others' example
What does it mean?
We already knew that the fortunes of an export-driven economy like Singapore depended on circumstances beyond its control, such as the health of the American economy and the European market. The new bank deposit guarantee is also based on decisions by other countries. You have to go with the flow in a global economy.
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Once HK succumbed to the dumb guarantee move triggered by Ireland, how could S’pore be far behind? I had written on Oct 16 in an eml to friends: “Some time last month after the Lehman and Lehman minibond failures hit the headlines, someone forwarded me a copy of a letter (reproduced below) which another someone purportedly wrote to MAS. I thought the letter ridiculous.
Yet less than one month of receiving that 4warded letter, I’m forced to review my initial reaction. Not that I’m convinced insuring bank deposits up to 100% is a good idea but if almost everyone in the world, starting from that place which believes in faeries and elves called Ireland and across to UK, US, parts of Europe and then Australia, NZ and HK, how are countries not already doing it to cope? How are those nations not offering 100% protection for all deposits going to protect their domestic banks from a sudden erosion of their deposit base, if they don’t have forex controls and yet host an overwhelming number of foreign deposit-taking banks on their soil?
Hence I can empathise why MAS “said last night that it will ensure local banks are ‘not disadvantaged’, adding that it is studying measures other countries have taken to shore up confidence in their financial systems”. Banking sources told The Straits Times it is a sign that MAS is considering securing all bank deposits in Singapore.”
However as deposits are on one side the ledger, and loans on the other, isn’t a blanket guarantee for deposits also effectively guaranteeing the loans?
Hope the cure first taken by Ireland isn’t going to be another stroke whereby the global banking system paints itself into an even tighter corner.
L
“Oh what a tangled web we weaved, when first we practised to deceive”…
Letter purported to have been sent to MAS in Sept 08
Subject: $20,000 is very low protection for bank deposits
To: consumers@mas.gov.sg
Dear Ms Angelina Fernandez
I read in your article in the Straits Times today about insurance companies in Singapore needing to set aside 120% for their liabities to all policyholders. This is reassuring, as it means that there is 100% protection for all premiums put into insurance policies. Annuities, for example, can be redeemed or must be honoured 100% minus any payouts already paid out by the insurance company to the policy holder, even if the company goes bankrupt, I conclude.
However I was alarmed to read that for any depositor in any major bank in Singapore, the MAS ruling is that only $20,000 is protected. So if, for example, a person has $40,000 in savings and $60,000 in fixed deposits, the depositor can lose $70,000 of his savings. The protection of $20,000 is far too low! It may cover 80% of depositors. But what about the 20% who have deposited more than $20,000 in a bank through hard work?
There should be 100% protection of one’s savings in banks. I am not talking about risky financial instruments like unit trusts or structured deposits. The stock market is extremely volatile, all over the world. Many people have already lost a lot of money. Not everyone who has more than $20 k in a bank has enough money to buy property. Where do we put our savings for retirement or old age? Under the bed or inside a mattress? Most would likely put our money in a bank, even though receiving only paltry interest rates. It is improtant to have money saved for emergencies, major illnesses, unexpected happenings, etc.
Now it seems that savers can lose all their savings which are more than $20 k ! It is not impossible for any bank to go under or bankrupt, even in Singapore, especially if it undertakes risky investments on a wide scale.
It is time for MAS to protect the needs of all bank depositors, as many stand to lose as much as several tens of thousands or even some millions deposited trustingly in our banks. Savings and fixed deposit depositors are conservative with money and deserve to be much better protected by the banks, and by MAS. It is time to review your policies.