How does deposit insurance participate in handling banking incidents?

State Bank Governor Nguyen Thi Hong reported at the meeting .

Continuing the 49th session, on the afternoon of September 22, the National Assembly Standing Committee gave opinions on the draft Law on Deposit Insurance (amended).

State Bank Governor Nguyen Thi Hong said the Draft consists of 8 chapters and 44 articles, of which 28 articles are amended and supplemented; 7 new articles are added; 2 articles are abolished; and 9 articles are kept unchanged.

Regarding the basic content, Ms. Hong stated that the Draft supplements the rights and obligations of the deposit insurance organization (DIA) to conduct inspections of organizations participating in DIA according to the plan and content assigned by the State Bank; borrow special loans from the State Bank; participate in the process of handling organizations participating in DIA. Such as, appointing qualified people to hold management and executive positions, members of the Control Board at people's credit funds under special control according to the State Bank's request; participate in assessing the feasibility of restructuring plans for credit institutions under special control according to the law on credit institutions; purchase long-term bonds of credit institutions receiving compulsory transfers, and make special loans to organizations participating in DIA.

The notable content mentioned by the Governor is the regulation on deposit insurance participating in handling credit institutions that are allowed early intervention and special control; participating in handling incidents and crises in the operations of credit institutions.

Accordingly, the Draft Law stipulates that the Deposit Insurance Organization shall make special loans to deposit insurance participating organizations when the deposit insurance participating organizations are intervened early, are under special control and are subject to mass withdrawals; to implement recovery plans and compulsory transfer plans. The Deposit Insurance Organization shall decide on special loans, including loans with/without collateral, with/without interest.

The draft law also adds provisions on payment in special cases. According to the provisions of Clause 4, Article 162 of the Law on Credit Institutions, the State Bank reports to the Government to decide on requesting the deposit insurance organization to pay in case the credit institution under special control loses or is at risk of losing its ability to pay. The deposit insurance organization is granted special loans by the State Bank with 0% interest rate, without collateral in case the amount in the operational reserve fund is not enough to pay; the deposit insurance organization develops a plan to increase the deposit insurance premium to compensate for the special loan.

In addition, the draft Law supplements regulations on cases where incidents and crises arise, the Government shall decide on cases where incidents and crises arise and necessary measures, including other measures prescribed by law, to handle incidents and crises and report to the National Assembly at the nearest session.

In the preliminary review report, Chairman of the Economic and Financial Committee Phan Van Mai said that regarding participation in handling credit institutions that are subject to early intervention and special control; participation in handling incidents and crises in the operations of credit institutions, the Standing Committee of the review agency requested the drafting agency to draft a study with specific regulations on the maximum scale of special loans of the deposit insurance organization on the total operational reserve fund; develop a set of transparent criteria to approve special loans; strengthen the mechanism to monitor the use of special loans from the deposit insurance organization.

At the same time, it is necessary to clarify in which cases credit institutions borrow specially from the State Bank, and in which cases borrow specially from the deposit insurance organization, ensuring that it is consistent with the financial capacity of the deposit insurance organization; and have specific instructions on the conditions, interest rates and collateral of the deposit insurance organization's special loans to credit institutions.

In addition, Mr. Mai proposed clarifying the political, legal, and practical basis for regulations on payment in special cases and participation in handling incidents and crises in the operations of credit institutions, ensuring consistency with the resources of the deposit insurance organization, avoiding duplication with the provisions of the Law on Credit Institutions.

The Standing Committee of the Inspection Agency believes that it is necessary to consider removing the regulation "The Government decides on cases where incidents and crises arise that pose a risk to the safety of the credit institution system, necessary measures, including other measures under the law, to handle incidents and crises and report to the National Assembly at the nearest session" because it overlaps with the regulation in Clause 4, Article 162 of the Law on Credit Institutions in terms of both authority and resolution plan.

In a further explanation, State Bank Governor Nguyen Thi Hong said that according to current regulations, when an incident occurs, such as a bank being hit by a massive withdrawal, many solutions are needed to stabilize the system. For example, the central bank must provide special loans with a large volume.

“Deposit insurance, although at that time had nearly 100,000 billion VND, could not be used. Because the old regulation was that this fee was in the collected fund and could only be paid when the credit institution went bankrupt. In fact, bankruptcy is also a difficult story,” said the Governor.

Therefore, this amendment, according to Ms. Hong, needs to involve the deposit insurance organization in the banking restructuring process.

The Governor emphasized that the most important thing is to allow deposit insurance to be paid to depositors sooner, instead of having to wait until the credit institution declares bankruptcy before it can be used. The deposit insurance agency pays deposits earlier to ensure system safety. If the fund is used up but there is still not enough money to pay depositors, it can borrow specially from the State Bank.

Ms. Hong explained that in case of necessity, the State Bank will still lend, depending on the context and practical situation, it will determine whether to lend specially from the State Bank or to the deposit insurance. And in case of using up the reserve fund, the deposit insurance can borrow from the State Bank. Then, the deposit insurance will collect fees to repay the special loans, that is the most important point.

Regarding the opinion that the State Bank or deposit insurance should clearly stipulate cases where special loans are made by the State Bank or deposit insurance, the Governor said that "it depends on the actual situation and conditions because stabilizing the system must also be associated with macroeconomic stability".

According to the Government's proposal, the draft Law on Deposit Insurance (amended) will be submitted to the National Assembly for consideration and approval at the upcoming 10th Session.

Source: https://baodautu.vn/bao-hiem-tien-gui-tham-gia-xu-ly-su-co-ngan-hang-the-nao-d391143.html