Propose a mechanism for Deposit Insurance to be able to pay all money to customers when the bank goes bankrupt

ANTD.VN - The State Bank of Vietnam is seeking feedback on the draft amendments to the Law on Deposit Insurance. A notable aspect of the draft concerns the participation of deposit insurance in the process of handling weak credit institutions; and regulations on insurance payouts in the event of a credit institution's bankruptcy…

It is possible to pay out the full insured deposit amount to the customer.

The Law on Credit Institutions (CIs) of 2024 has added provisions on handling cases of mass withdrawals from credit institutions, including a number of response measures from the affected credit institution itself and measures from the regulatory authority.

However, according to the State Bank of Vietnam, responding to the crisis requires a comprehensive mechanism of multiple measures, including the participation of the Deposit Insurance Organization.

Therefore, in the Draft, the State Bank of Vietnam proposes several regulations to enable the Deposit Insurance Corporation to participate more deeply in the restructuring process of weak credit institutions.

Specifically, the regulations provide detailed provisions on the organization of deposit insurance for special loans to credit institutions under special supervision to implement recovery plans and mandatory transfer plans;

The regulations are amended to allow the Vietnam Deposit Insurance Corporation to independently decide on special loans to credit institutions under special supervision that have lost or are at risk of losing their ability to repay deposits to depositors, and to borrow special loans from the State Bank of Vietnam when temporary capital is insufficient to provide loans to support repayment…

Research and supplement mechanisms to enable the Deposit Insurance Organization to participate more deeply in the restructuring process of credit institutions; supplement mechanisms to leverage the resources of the Vietnam Deposit Insurance Corporation in handling incidents and crises in the operations of credit institutions, avoiding the risk of systemic contagion…

It is necessary to enhance the financial capacity of Vietnam Deposit Insurance Corporation.

Regarding regulations on insurance payouts, the Draft also proposes amendments and additions to allow the Deposit Insurance Corporation to participate earlier in paying out to depositors at weak credit institutions.

Specifically, the draft adds a provision stating that in exceptional circumstances, the Prime Minister may decide to pay out the full amount of insured deposits of depositors at deposit insurance participating institutions when the obligation to pay insurance arises, at the request of the State Bank of Vietnam.

According to the drafting agency, this proposal aims to avoid a chain reaction of mass withdrawals by depositors and minimize liquidity risks for credit institutions.

Enhancing the financial capacity of Deposit Insurance

However, in addition to the positive impacts, the State Bank of Vietnam believes that paying out the full amount of insured deposits to depositors requires the Deposit Insurance Organization to enhance its financial capacity to meet new requirements and tasks.

Therefore, in the Draft, the State Bank of Vietnam also proposed many new mechanisms and policies to improve the efficiency and financial capacity of the Deposit Insurance Organization.

According to current regulations, the Vietnam Deposit Insurance Corporation is only allowed to use temporarily idle funds to purchase government bonds, State Bank of Vietnam treasury bills, and deposit money at the State Bank of Vietnam (financial investment).

According to the State Bank of Vietnam (SBV), as of September 2024, the investment amounted to VND 119,072 billion, accounting for 97.77% of the total capital (VND 121,783 billion). Interest earned from this activity is recorded in two parts: one part is included in revenue to offset annual operating expenses (approved by the Ministry of Finance, ranging from 17.5% to 22%); the remaining part is allocated to the operational reserve fund (78%).

Under the current mechanism, the accumulation of the Development Investment Fund is very limited. In the last five years, investment profits have ranged from approximately VND 2,500 billion to VND 3,600 billion per year. However, the Ministry of Finance annually determines the income allocation rate to fluctuate between 17.5% and 22% of the total profit. After offsetting expenses, the difference between revenue and expenditure is very low, with the amount allocated to the Development Investment Fund ranging from VND 40 billion to VND 65 billion per year.

The State Bank of Vietnam believes that, under the current mechanism, the Development Investment Fund is projected to reach only VND 1,250 billion by 2030, failing to meet the target of increasing charter capital according to the Vietnam Deposit Insurance Corporation's strategy of VND 15,000 billion (current charter capital is VND 5,000 billion).

Currently, the only sources of funding to increase the charter capital of the Deposit Insurance Corporation are the State budget and accumulated funds from the Development Investment Fund. However, according to the State's policy, no additional budget allocation will be provided to increase charter capital; instead, the Development Investment Fund will be used for this purpose.

Therefore, under the current mechanism, it is very difficult for the Vietnam Deposit Insurance Corporation to increase its equity capital in the future. Consequently, it is necessary to improve the legal regulations on the financial regime of the Deposit Insurance Corporation in the Law, address difficulties and obstacles, and create conditions for the Deposit Insurance Corporation to enhance its financial capacity.

The State Bank of Vietnam (SBV) proposes amending and supplementing regulations on the operating capital sources of the Deposit Insurance Organization to include: the State-provided charter capital of the Deposit Insurance Organization; borrowed capital; operational reserve fund; development investment fund; financial reserve fund; and other legitimate capital as prescribed by law.

Simultaneously, amendments and additions are being made to expand investment forms and increase the scale of the operational reserve fund. Accordingly, the Deposit Insurance Organization is allowed to use temporarily idle capital to buy and sell government bonds, local government bonds, and State Bank of Vietnam treasury bills; buy and sell bonds and certificates of deposit issued by state-owned commercial banks and joint-stock commercial banks with more than 50% state capital; and deposit funds at the State Bank of Vietnam, state-owned commercial banks, and joint-stock commercial banks with more than 50% state capital.

The regulations are supplemented to require the Deposit Insurance Corporation to purchase long-term bonds of credit institutions that are being transferred, as mandated by the State Bank of Vietnam's decision.

Source: https://www.anninhthudo.vn/de-xuat-co-che-de-bao-hiem-tien-gui-co-the-chi-tra-toan-bo-tien-cho-khach-khi-ngan-hang-pha-san-post603937.antd