The Hong Kong Special Administrative Region (HKSAR) Government announced on Tuesday that it will use the exchange fund to guarantee the repayment of all bank deposits in the special administrative region until 2010.
The measure, announced along with the establishment of a contingent system for local banks to access capital, will remain in force until 2010, when the measures are subject to reassessment, said Henry Tsang, Financial Secretary of the HKSAR government.
The two measures to safeguard banking stability, announced at a press conference with immediate effect, "are precautionary and pre-emptive in nature," and "there was no serious issues in the banking sector," he said.
Hong Kong Monetary Authority Chief Executive Joseph Yam, who also appeared at the press conference, said he believed the expanded deposit guarantee scheme will give local residents " infinite confidence" in the safety of their bank deposits.
The new deposit protection scheme will cover all the deposits in local authorized institutions with full repayment, compared with the previous scheme's cap of 100,000 HK dollars (12,800 U.S. dollars).
Local broadcaster RTHK said the bank deposits in authorized institutions currently totaled around 6 trillion HK dollars (769 billion U.S. dollars).
The contingent capital system will make additional capital available to locally incorporated licensed banks on request and subject to supervisory scrutiny, Tsang said.
There are currently 23 incorporated licensed banks in Hong Kong.
The HKSAR government decided on the unusual measure of expanding the deposit protection scheme because it was an unusual period of time, given the current financial turmoil, said Yam, who had also weathered the Asian financial storm a decade ago.
Yam emphasized that he believed that the HKSAR government will not need to use even "a cent of the exchange fund" to repay the bank deposits before the end of 2010.
Bank of East Asia had experienced a bank run recently following rumors questioning the bank's financial stability. The dust settled shortly after when the bank disclosed its financial conditions and the HKSAR government pledged help to dispel the rumor.
Local residents welcomed the full deposit protection scheme and some members of the Legislative Council said the measures, like similar moves by other economies, could help boost the confidence of local residents in the safety of their deposits.
One of the academicians, however, said the measures could mean risks for the HKSAR government and that authorities need to strengthen the regulation and supervision.
Tsang said he was aware of the different views on the deposit protection and the concerns about possible moral hazards.
"I have set a time limit for these measures in order to allay such concerns. Moreover, the measures are not just about protecting banks, they are also about protecting the people in our community," he said.
Source: Xinhua
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