The following is a letter sent to TOC by Harrison Goh. The letter has also been sent to the Straits Times.
Harrison Goh
The highly unpredictable development of the on-going financial crisis is spiralling out of control. Globalisation has inflicted all financial centres and economies with unforeseen exposure which can potentially lead to chaos and economic depression, culminating in violence and war.
From the epicentre in the US, the crisis has now engulfed Europe. While some Asian leaders have been optimistic that Asia is in a much better position to ride over this crisis mainly on the premise of low debts or positive fiscal accounts, these are not foolproof that can protect Asia from the fast spreading financial SARS.
With high dependence on exports, Singapore’s exposure can be envisaged as substantial. Singaporeans lack official data nor credible market information to generate an informed analysis of the country’s position, especially the local banks’ exposure.
Our govt leaders have been vocal in stating that Singapore is fine and is in a position to tackle the impending recession. This is no doubt a consolation that Singaporeans wouldn’t mind having.
On behalf of fellow Singaporeans, may I call upon the government to guarantee all bank deposits in Singapore. Besides the reassuring confidence, Singaporeans can then focus on their jobs and businesses. This proactive action will be a vote of confidence for Singapore, something that citizens certainly need in a time of uncertaint.
Picture from yalibnan.com .
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Here’s something for you to think about. If the Govt guarantees ALL bank deposits, what will happen to other assets?
Why not? PAP Government is the ruling party of this country, if they don’t back up the banks here, then who will? It is very tiring for us to open so many accounts with so many different banks to keep our money safe. I believe many of us are forced not to put more than 20K in one bank. This shows of having no faith and no confidence in our banking system.
Hello,
It may be good to first examine the reasons why some central banks are guaranteeing bank deposits. Firstly, there is a run on these banks; not just amongst depositors but also the banks’ counterparties. Secondly, the cost of funds has spiked to unprecedented levels, increasing the cost of finance for the banks and corporates.
In Singapore, there is no run on our banks – our Singaporean banks continue to trade without any penalty in the international markets. In addition, the SIBOR has stayed relatively stable during this period, attesting to the fact that our monetary system is sound and financial institutions here are willing to lend to each other.
I see little need to guarantee the bank deposits – we may risk sending the wrong message.
Eaststopper
Just to add,
The writer is right in saying that we are now living in a globalised world. Hence, it is imperative that any actions undertaken are in unison with the rest of the world.
If the Singapore government guarantees all bank deposits, what would be the likely scenerio?
Any foreign corporates, nationals who are based in SIngapore will most likely translate their deposits into Singapore dollar deposits. This may go against the bailout plans laid out by the US, UK and Europe. There may be unintented consequences if we undertake such a move.
Eaststopper
Hmm, will this then cause the SGD to drastically appreciate in value?
Besides the point – I think the writer is pointing out that the govt should not give empty words of promise.
“We will pull through this economic downturn!”
may actually just mean
“All you people there, please pull through the economic downturn, okay?”
or pessimistically speaking,
“I really hope we will pull through this economic downturn… -twiddles thumbs-”
No the writer is an idiot who has no idea what he’s talking about. As Eaststopper has pointed out, there are unintended consequences to the writer’s suggestions.
Like I said in my first comment, think about your ideas before you start patting yourself on the back for being “smart”.
I know that Singaporeans can buy HDB flats directly from the Government whereas non-Singaporeans can’t do that.
I know that Singaporeans’ children go to public schools heavily subsidized by the Government whereas non-Singaporeans don’t enjoy this priviledge.
I know that Singaporeans’ chilren are subsidized partly when school health is concerned.
Should our Singapore Government guarantee all bank deposits, I would think it should just go the the CITIZENS and not any foreign corporates or nationals.
Why, I said this. My folks don’t buy insurance plans, don’t invest in all kinds of financial products, don’t speculate, and don’t work now. All they have is put their retirement fund with POSB bank, their home-grown bank.
One day should they wake up and find themselves left with 20k, don’t you think it is so unfair to these simple folks?
Actually, the author has got the focus too narrow. The Govt should ensure that banks don’t collapse first. Its more than just deposits.
But it won’t happen in Singapore. With banks protected with high interest rates on loans and low interest rate on savings, it would be criminal if it fell.
You also want to guarantee those deposited by multi-millionaires and billionaires?
And who should absorb the higher costs?
why not, if the banks do not want to guarantee, at least make a public annoucement why not. it is time the ruling regime and this big corporate start to engage with the public.
Thanks.. I would love it if Singapore banks guaranteed all deposits..
If not, I have a headache how to split it into $20k .. there isn’t that many banks in singapore for me to do that..
“8) lim on October 14th, 2008 9.44 am
But it won’t happen in Singapore. With banks protected with high interest rates on loans and low interest rate on savings, it would be criminal if it fell.”
Of course, what you say should be practised. Saying that it is criminal without effective punishment for the culprits is a very hollow vacuum.
Hey, now we are living in a world with a lot of technical experts who know how to play around with words and in reality are not really providing real value. Some are here to make you part with your money and you end giving them more rights to protect themselves rather than yourself.
You put in simple hard cash and they give pages of difficult hard rules & regulations.
Anyway, by virtue of the SGD20,000/- guarantee, they can always claim that you need to bear the rest of the risk and be responsible for yourself if anything goes wrong right. You are doing with open eyes and with the clear knowledge of this SGD20,000/- guarantee.
“But it won’t happen in Singapore.”
I hope you are right. Nothing is permanent.
Don’t put too much faith on this $20,000 so-called “guarantee”. Guaranteed by whom? Not by our Govt.
The “guarantee” is from a specially set up insurance fund. This fund is miniscule compared to AIG which is one of the largest insurance group in the world.
If AIG can almost go belly up in a financial crisis, what makes you think our mini insurance fund can never go belly up? This may happen if, God forbid, our local banks and other financial institutions which you put all your $20k into also fall like dominos.
So even though you spread out your savings into many many financial institutions, when the crunch really comes, you may get only $20k altogether.
The govt., I am sure, will be responsible and guarantees all common man deposits, savings and fixed deposits, with all banks BUT whether one wants to hold the government responsible for investors investing in foreign products, bonds, for the matter, currencies (forex).
An investor who acts independently should be responsible for his actions/follies as much as enjoys reaping profits…..Lets not mix a ‘domestic’ saver from one of an ‘international’ saver who dares put his funds in foreign investments for sole purpose of making bigger profits – he has got to reap fruits of his investment – ripe or rotten……………..
“An investor who acts independently”
Do aunties and uncles who barely know english count as independent. And how about those who know super English but are clueless about financial products.
“…..Lets not mix a ‘domestic’ saver from one of an ‘international’ saver who dares put his funds in foreign investments for sole purpose of making bigger profits – he has got to reap fruits of his investment – ripe or rotten……………..”
Are you so sure ?
Have you ever been approached by some “consultant” while queuing in a bank or even in some done-up booths in some road shows.
Some of the ‘consultants’ look so super young as though they have just come out fresh from school. Nowadays, they really make good use of the word ‘inflation’ by inflating the job title of almost every neophyte who has a face and two eyes.
If you know a little bit, you can show off by rattling some financial terms and some of these ‘consultants’ will be confused and run to for help by getting someone senior who is able to explain more.
If you are some poor aunty and uncle, well I leave it to you to guess the outcome. No prize for guessing right.
V S RAAJ, people like you are little bit on the stinky side and I doubt poor aunties and uncles will ever give you a sliver of sympathy if you are ever crushed by loads of ripe durains falling from a truck.
Any government guarantee would have a limit on the amount per account and a specified time period. Conservative savers who do not invest in risky financial products or speculate in volatile markets ought to be protected. Confidence in the banks would stem the contagious falling of the rest of the financial system. Nevertheless, there must be some indicators of the system at risk of faltering before it warrants government action.
V S RAAJ ,
be sensible. If there is a few investors that have this problems then it is obvious it those investor’s problems but you have majority of the investors (and please don’t insult my intelligence to ask Who are the investors ? Don’t be like LKY.) who invested in lehman thing have same complain about misleading and concealment of information, then it is the bank’s problem to solve and account for. Stop saying that we must put trust on government particularly not one with so much conflict of interest and their KPI rewards by GDP.
Don’t insult people’s intelligence here.
Judging from the rather low response, I suppose a high level of faith is bestowed on Singapore’s financial system or perhaps, most people have done the necessary in spreading their savings over various banks as well as hoarding cash.
By now, most of us who follow the news and reports closely would have realised the immense underlying debts that have not surfaced yet as well as the actual exposure of local banks. Our local banks may be conservative and well managed but they may still be dragged down by the demise of other banks. Lehman Brothers’ collapse serves as a sobering reminder to us of the many unforeseen complications that can arise.
Given MAS’ pathetic response to the minibond crisis, it would be foolhardy for us to rely on mere words of others for reassurances. It would in fact be idiotic if one chooses to wait till calamity strikes. We have been reminded on a number of occasions that our deposits are covered for $20,000 only. The message is loud and clear.
The sole purpose of my letter is to obtain a government guarantee for Singaporeans’ bank savings which is necessary to pre-empt any bank runs should further shocks emerge from the crisis. 13) Faircomment has pointed out the dark truth that even the $20,000 coverage may not be secure afterall.
Any logical thinking person would share the same concern as me for our savings. If we can’t protect our own savings, other consequences are immaterial and beyond us.
For those with rather narrow-minded judgement on the nature of my letter, you are entitled to your opinion. However, if you can’t qualify your statement, kindly keep those words for yourself.
Jim Rogers said that Singapore will be the only one left standing. Of course! The country is too big to fail but not the banks.
It’s good that that the government has finally started looking into funds linked to Lehman, AIG and other failed companies. There are just too many other financial products that are not aboveboard. When times are good, many trusting investors persuaded by bank marketeers into parting with their cash get shortchanged with low returns. When times are bad, they lose everything.
From Wall Street Journal:
Hong Kong guarantees deposits, adds bank facility
HONG KONG — This East Asian financial center became the first in the region to fully guarantee all bank deposits and announced a new facility to provide capital to banks.
The moves, aimed at restoring confidence to the rattled local market, mirror similar deposit guarantees made recently in Ireland, Germany, Australia, the United Arab Emirates and other countries.
Joseph Yam, chief executive of the Hong Kong Monetary Authority, said the deposit guarantees were intended to discourage people from moving deposits away from Hong Kong. Before Tuesday’s measures were announced, Hong Kong’s depositors were guaranteed only up to HK$100,000 — about …
http://online.wsj.com/article/SB122398159696132309.html?mod=googlenews_wsj
the ruling regime should focus more on the monetary regulation at how to better regulate the type of products banks are allow to sold and not 100% up to the banks. Banks exec like all human are greedy and they would be blinded into selling products that make millions and yet print small fonds to protect them in case such investment products go very wrong.
in my opinion, DBS is a very very very irresponsible banks. while acting like agent for lehman investment products, they totally transfer such risk to the consumer while pocketing commission from the sales of such pdts.
… if it means that depositers will transfer their monies out of singapore to banks in those countries where the governments provide the guarantee, then YES, our “gahmen” should do likewise, considering that Singapore wants to become the financial centre in this part of the globe.
It actually cost nothing for our “gahmen” to give the guarantee (if our banks are very strong as claimed) but then they are not very good at taking the lead in the international arena. They are more reactive than proactive. Now is the time to be proactive and not reactive. You also need to calm the nerves of many uncles and aunties who have their retirement nests with the banks and finance companies.
Do guarantee their deposits and don’t sit until the shit hits!
Guarantee of deposits is the most basic form of building confidence. It’s for the peace of mind of ordinary mums and dads. Ah well, if EU members can’t even agree on that and opens up the possibility of funds moving to those countries that provide country, it’s obvious whose loss it would be. Currency weakening is another concern.
Harrison Goh,
Coming from the point of view of economic theory, any form of insurance, including government insurance, has many unintended consequences.
As an example, although insurance is desired by some, it creates a moral hazard. Knowing that deposits are insured, banks may invest it recklessly. The banks profit. And, ultimately, when the cost of insurance is paid, the money comes from taxpayers.
Also, any form of government intervention, including insuring deposits, has many undesirable consequences too.
Did the US government’s artificially low interest rates from 2002 to 2005 induce consumers to take up excessive mortgage loans and risks? Or was it their guarantee and insurance of those mortgages that led financial institutions to feel safe, without verifying the quality of the borrowers?
Perhaps it would be better to be sensible and informed citizens, to change this:
“Singaporeans lack official data nor credible market information to generate an informed analysis of the country’s position, especially the local banks’ exposure.”
The case of DBS and the minibonds is telling. An investor who did his homework would have realized the risk. One who did not should have acknowledged his ignorance. And after DBS’s breach of ethics, one of the foundations of banking, we don’t see people hurrying to withdraw their life savings from DBS.
Even if we guarantee bank deposits, there is no protection from the combination of ignorance and stupidity. We should address that first, before we discuss government insurance on deposits.
*I’m not saying that deposit insurance is right or wrong, but that it’s contentious, while the problem with Singaporeans’ primitive state of financial literacy is certain.
Now that Hong Kong is doing it, Singapore better follow suit (despite my distaste for such blanket gurantees), otherwise most of the deposits will flow to HK in no time.
ST reported today that our govt may follow HK to guarantee all bank deposits. Why?
Not to protect the life-savings of small depositors, but to stop rich depositors from moving their $$$ to HK. This turnaround is not to accede to Harrison Goh’s request but is further proof of the govt’s pro-business policies first while always relegating consumer rights to the background.
I concur with Faircomment – only when foriegn money starts fleeing S’pore for HK and other safe haven currencies with higher guarantees (and higher interest rates) will the S’pore govt take action.
Also, although local banks have been affected by higher cost of borrowing US$ (ie above LIBOR)- this has thus far been a issue affecting all international banks. If banks who’s govts have guaranteed interbank lending are now able to borrow closer to or at LIBOR, and our banks cannot, then again the govt may have to step in to g’tee interbank lending.
Hong Kong,
please continue to set the good example of what a democratic country with good and caring government do so that the our gov can learn and imitate you. You illustrate people’s power matter unlike here.
Monkey see, monkey do …opppsss… wrong. It is kangaroo see, kangaroo do.
There are many manufacturers giving life-time guarantee for their product to prove that they are very confident in the quality of their products.
If our Ministers can’t stop saying the banking system in $ingapore is every stable, why can’t MAS quickly follows HK and many countries to give 100% guarantee for the bank deposit.
We are very tired of all the high sounding lip-gurantee. Say, no need to pay.
In the latest, Aussie government has declared war on unregulated extreme capitalism, greed, high CEO salaries, risk taking, and pouring in money to help young families and pensioners. A living example of kiasu-ism from the least expected.
?!X# on October 15th, 2008 11.47 pm
You are right. If the minister is so confident of our financial insititutions, and hopefully he is right, a 100% guarantee on deposits in our banks will not cost the government any money, as there will not be any drawdown from government’s funds.
Having said that, knowing our government, banks may have to `pay’ for such a guarantee by the govt. In this case, we the ordinary depositors may end up paying for something which would not cost the govt anything!
I feel this is a time when the government ( of the people ) should use its own funds ( belonging to the people ) to reassure the depositors ( who are the people themselves), at no cost.
Take a look at the fines meted out to the transport companies. It is the people who suffered from the companies inabilities to keep up to the required standard. The money goes to government funds ( belonging to the people?). Shouldn’t such funds go back to the people?
The case of DBS and the minibonds is telling. An investor who did his homework would have realized the risk. One who did not should have acknowledged his ignorance. And after DBS’s breach of ethics, one of the foundations of banking, we don’t see people hurrying to withdraw their life savings from DBS.– by dingfeng.
the investigation now is about whether the DBS banks investment analysis purposely misled the investor into believeing it is low risk high return investment.
instead of putting the blame solely on the investors, why not say, where is the code of ethics is local banks practices.? the withdrawl from DBS could be happening before you know it if gvt continue its stand of not gunrateeing deposits. moreover, it could worse if temasek or GIC is not the suggar daddy of DBS.
Is this what you were asking for?
http://www.channelnewsasia.com/stories/singaporelocalnews/view/383331/1/.html
The funny thing is how people want the government to back the banks up who are holding on to our money with Singapore’s reserves. I ask this question, Singapore’s reserves consists of whose money?
What is basically happening is our money is being used to back our money in the bank….. almost sounds like an oxy-moron…. what do the people and consumers gain from all this? Nothing…..
The financial system right now is a big screw-up and is so susceptible to individuals who takes the money from hardworking people who contribute to the society through legitimate work to invest in high risks venture for self glorification, promotion and financial rewards….. If the individual does well, he gets promoted and shitloads of money and the people who provide the money for investments get pathetic interests for their money deposited with the banks….. That part is still fine…
So what happens if the individuals screw up and lose the money? The banks file for bankruptcy like in the fine example of Lehman Brothers….. and again who are the people who are supposed to bail them out? Sure, go ahead, use the reserves, anyway, it’s tax-payers money…. tax-payers money is not important anyway, right?
Adolf Hitler:
“instead of putting the blame solely on the investors, why not say, where is the code of ethics is local banks practices.”
I do not disagree that banks and financial institutions play a part. However, in this situation, the weakest link at the moment is the consumer. A fool and his money are soon parted. It is impracticable to explore the full scope of stupidity, and it is common sense to see how financial literacy would have averted this situation.
Remember that we are not laying the blame (single-cause explanations seldom reflect reality anyway). We are proposing a solution, and financial literacy is a long-term solution with much less side-effects.
Ridiculous:
I think deposit guarantees have a much wider effect. If you follow Gerald Giam’s link, or if you follow the news headlines,
“The move follows similar action by governments around the world in recent days as they sought to deal with the current global financial crisis.”
“Singapore has assured that its banking system continues to be sound and resilient, but it said precautionary action must be taken to avoid an erosion of the banks’ deposit base and to ensure a level international playing field for banks in Singapore.”
Deposit guarantees could easily be an excuse to “subsidize” the banks, giving them unfair advantage in the international arena for investor’s money. It’s especially important for a financial-hub wannabe like Singapore, considering that Hong Kong has already led the pack.
The downside, like you said, is that when the situation turns bad, we foot the bill.
It’s curious how some think that deposits guarantees are for the good of the average citizen.
Finally, the market forces the government to reverse its decision. This is not a time for just plain talk and assurance. That was also the initial responses of the US government and bank chiefs. Fast forward and we are in a totally different mood since.
Bank deposit gaurantee serves the purpose of stabilising the financial institutions without which, exodus of deposits will continue quietly. It’s a fact that MAS has injected liquidity into the system!
Just a very conservative example for us to ponder over the potential magnitude of withdrawals. This is besides the expected transferring of savings into various banks to stay within the $20,000.00 payout. The greater evil is that massive amounts will be transferred to countries with deposit guarantee.
Eg. Assume 1 million families in Singapore
Each hoard an average of $5000.00 cash at home = $5 billion withdrawn from the system = banks’ diminishing deposits = banks’ higher cost of borrowing from MAS = MAS injecting more liquidity into the system.
The end result is that Singapore suffers for not taking proactive action.
Deposit guarantee is not a permanent requirement. It’ll be logically withdrawn when the world’s financial system reverts to normalcy. We can comfortably assume that banks will be much more prudent and conservative going forward.
Before the crisis, the safety of my bank deposits did not cross my mind at all and neither was I aware that $20,000.00 was the maximum payout in the event of a bank’s failure. Having been well informed now, the government’s gaurantee has prevented me from taking the necessary steps to safeguard my interest.
I’m sure this resonates with many others and I’m definitely not the first to make this necessary call. As expected, my letter was not published in ST forum. Here is the email reply received on 15/10/08.
“We regret we are unable to publish your letter.
If your letter relates to a matter under the purview of a government department, you may want to visit
http://www.sgdi.gov.sg for a list of officials to contact.”
Harrison,
You’re spot on. But sadly, the Singapore govt acted only AFTER the Hong Kong, German and French govts declared they would guarantee bank deposits. And again, sadly, the S’pore govt’s actions is not really to protect the average Singapore investor or depositor. It is to prevent money from flowing out of Singapore.
What is evident from this episode is that the Govt – and MAS – are followers, not leaders, despite trumpeting how Singapore is a financial centre and financial hub.
By the way, the MAS and the govt are still dragging their feet over how to help investors affected by structured products.
In contrast, look at how the Hong Kong govt is pro-active and aggressive – protecting the investors and even saying that it is ready to contribute to the legal fund for investors to use to engage lawyers to fight the banks.
See here.
In S’pore, all GOH CHOK TONG, Chairman of MAS, would say is: “Put your money in the CPF if you don’t want risk.”
Tsk tsk tsk…
To Harrison
You estimated that it would take $5b to guarantee bank deposits made by a million Singapore families. As a citizen, I don’t understand why our govt is willing to risk $170b to prevent money flowing out of Singapore but not $5b to safeguard the small depositers? The policy turnaround shows the top priority our govt places on making money over its moral obligation to citizens in normal times, which carries forward to periods of crisis too.
To Ridiculous & Dingfeng
I agree that Singapore’s Reserves “belong” to its citizens and that the Reserves should not be used as guarantees or to bail out our financial institutions.
Having said that, would you prefer our govt to use a small part of its Reserves to guarantee your life-savings or to have your life-savings completely wiped out in the current financial crisis but leaving the Reserves fully intact?
If the Reserves really “belong” to you, would you use your entire salary and life-savings to top-up the Reserves? After all, isn’t it merely transferring money from your left pocket to your right pocket?
Sorry, $150b not $170b
Faircomment ,
You have probably misread my example. It was intended to illustrate the magnitude of possible withdrawals and outflows that will drain deposits from the banks. Certainly, the combined deposits in Singapore banks is much much more than $5 billion.
Andrew,
MAS is facing a big dilemma because DBS is involved. Would MAS’ response be different if DBS was not in the picture? It seems like MAS is forced to act by events in HK rather than what they ought to do as a governing body here. The calibre of MAS is quite revealing, isn’t it?
if the possibility do happens,how does bank return all money to all depositors in a day’s time and where do they get the money to do it?