TOC EXCLUSIVE: Is Agnes Lin a spoilt brat or a Straits Times victim? TOC speaks to Ms Lin and ST reporter Nur Dianah Suhaimi. Coming next on TOC. Read the controversial Straits Times report here.
Tan Kin Lian / Columnist
The Singapore Government has guaranteed all bank deposits in Singapore. I do not know the details of the guarantee and if any fee is being paid by the banks for this guarantee. This guarantee places the Singapore taxpayers at risk and deserves an appropriate return.
Possible risk
Here is a possible risk. A foreign bank receives $1 billion of deposits in Singapore from foreign depositors. The bank engages in risky trading and lose $1 billion. After deducting its capital, the remaining loss has to be borne by the Singapore Government, actually the taxpayers of Singapore.
The Monetary Authority of Singapore may have ways of monitoring this risk and preventing it. But, can MAS look after the detailed operations of all the banks in Singapore? Do they have the resources and expertise?
Higher interest rate
If the Singapore Government does not give this guarantee, some of the deposits in Singapore will flow to Hong Kong, Malaysia or other jurisdictions. To keep the money in Singapore, the banks have to offer higher interest rate, maybe 3%, 4% or 5%. This will allow the deposit rate to increase to the market rate, and give the public a better interest rate on their savings. This will be good news for Singaporeans.
Interest rate has been too low in Singapore for too long. This is due to excessive foreign funds being parked here. It depresses the interest rate and is used to inflate prices of property and other assets. The outflow of these funds may be better for the economy in getting the interest rate to a higher level and avoiding asset bubbles.
New Zealand
A friend sent me details of the guarantee scheme operated by the New Zealand Government. It covers deposits and debt securities issued by banks and other deposit taking entities.
Institutions with total retail deposits above $5 billion have to pay a fee of 10 basis points per annum in excess of this threshold. This means that a bank with $20 billion in retail deposits would pay $15 million in fees per annum. The institution has to pay a higher charge for growth in deposits from a certain date. This charge is 10 to 300 basis points depending on the credit rating of the institutions.
There is a coverage cap of $1 million per depositor per covered institution. Separate rules apply to the debt securities issued by these institutions.
I hope that the experience of New Zealand or other jurisdiction can be used to fine tune the guarantee that is offered to Singapore banks.
Oppose the Guarantee
Here are the views of some people who oppose the guarantee provided to the banks.
Why should tax-payers bear the brunt of the failures of the banking industry? The bankers are getting good remunerations and good perks and yet still fail to deliver. They should return part of their earnings to society and NOT expect the society to bail them out.
I hope that you can convince our government to be a little less pro-business and a little more pro-people. The decision to fully guarantee bank deposits was not intended to protect the life savings of our old and vulnerable but to protect the banks from draw-downs. Your alternative suggestion to let higher interest rates curb the outflow of bank funds is not only pro-people, but it achieves the same objective.
> In the past, many ministers spoke of the need to “regulate with a light touch”. Look what the lack of regulation has done to the US and world financial market. Even Alan Greenspan now admits that the principle of leaving the market to regulate itself has failed. What must it take for our ministers to finally see the light?
If MAS is not able to foresee the mini-bond crisis, I have less confident that they can manage this risk.
I like the interest rate to be high. I totally agree that interest rate has been far too low for retirees and savers. Cheap loans have led to large increase in property prices. The Government should follow the practices of other countries and use interest rate as a policy tool to curb inflation. There ought to be a minimum interest rate of 2% p.a. for all savings.
I feel that having deposit rate increase to 3-5% is a good thing for retirees and savers. In fact, if it wasn’t for the persistently low interest-rate environment for the past years, we would probably not be facing this problem of mass mis-sellng of toxic structure products.
A lot of banks here have deposits from wealthy foreigners. Should a bank failed, then taxpayers’ money will be used to pay off these foreigners. Do you think it is fair to Singaporeans? The full guarantee should only be limited to Singaporeans and not foreigners.
Support the Guarantee
Here are the views in support of the guarantee:
It is unbelievable that the banks will take advantage of the Singapore Government. If banks think of staying on in business for a long time, they will not resort to doing this. I am confident that the authority can clam down on the high flyers in the banks.
In ordinary times, it is correct to say that guarantee of all bank deposits is not a good policy. However, in extraordinary times, to instil confidence and prevent bank runs, this is a prudent policy.
To raise interest rate means that the corresponding loan rates will rise. This is not good for mortgages, car loans, business loans and it will indirectly increase cost for citizens and businesses.
You be the judge. Should Singapore provide guarantees for bank deposits?
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It is hard for me to wrap my head around all the financial issues involved, but I think it is primarily a confidence-boosting policy to prevent bank-runs from crushing financial institutions.
I believe at the same time the guarantees are made, MAS (hopefully … my confidence in it has been dented) also needs to regulate and ensure that banks have sufficient liquidity to service bank withdrawals on a normal day-to-day basis.
To me, as a person holding a bank account with a financial institution, I need to feel confident that if *some* people panic and withdraw their life savings, the guarantee will ensure that my own life savings will be unaffected even if the bank briefly loses liquidity. That the guarantee steps in to keep the bank afloat while convincing customers that the bank is in no danger of collapse.
Without the guarantee, or in spite of it, there’s nothing the government can do if *most* if not all customers panic and start a bank run.
That’s how I feel about it. I think my confidence in the US banks where I am now would be more severely shaken if not for the presence of the policy where FDIC “insures” up to US$100,000 in deposits. I was actually a little nervous about bank runs when the financial crisis first started having a serious impact.
To be fair, no one could seriously have predicted the mini-bond crisis and certainly the MAS didn’t want this to happen.
However, I agree that the bank deposit guarantee scheme carries a risk. There are several ways I can suggest to mitigate this.
There is increasing group of people who believe in the re-nationalisation of strategic assets including the financial sector as well as the transport sector. This is considered extreme in some cases.
Another method which the MAS can do is to tighten regulations in the banking industry. I agree with suggestions to adopt a classification system that classifies risk of financial products. Such risk profiling should not be restricted to external customers.
MAS should also require banks in Singapore to provide their risk profile of investments. This will identify how much of exposure banks in Singapore have.
On the stocks side, stock issuers should start considering the benefits of banded stocks. These are stocks that are traded within a specific band that is determinant on company financials and less prone to market speculation or herd mentality. SGX should consider allowing such stocks to be issued. This would provide greater safety to stock buyers.
Firstly, reserved had been involved. My question is has the EP who holds the 2nd key to the reserve been involved in the decesion making. Did the EP knows the risks being involved? Did the EP knows what was the return for putting the money at risk?
ooo I’m lost. But anyway, i thought the guarantees for bank deposits was for local banks like DBS?
Or did i miss something and it’s actually for ALL banks? If for ALL banks, i rather dun guarantee and i can park my money elsewhere also.
If dun guarantee, i understand DBS already guarantee 20k, so park 20k here and the rest else where.
If dun guarantee, u r saying foregin banks will leave and interest go up = good lo…
=D
Apparently, my earlier post was deleted so I summarise.
I believe that this a risk towards the bank guarantee scheme. I would suggest that the following be done to mitigate this risk:
(a) For MAS to adopt risk profiling not just for products sold to customers but to investments of financial entities so that investors will know the level of financial risk undertaken.
(b) For stock issuers to consider the adoption of banded stocks. Banded stocks are traded within specific bands determinant on their financials. SGX should allow such stocks to be issued.
They have to give that guarantee to maintain Singapore’s competitiveness. A lower rate hurts the depositors but reduce the cost of borrowing. So it favours the business people and the banks. This has been the way Singapore is run by the PAP government. Business first, Singaporean last.
I do hope that they charge the banks some kind of fee for this very valuble and possibly costly guarantee. It will be better if these money can be targetted to help the poor and disadvantage in Singapore.
If Singapore didnt guarantee the deposits, there would have been a run on the banks here as money would be withdrawn in droves. This was as well a confidence booster to prevent any funding problems faced by and especially our local banks like DBS, UOB and OCBC but the guarantee covers all Licensed banks which will include foreign ones I believe. So I would say I have to support this move or else we could open our banks to huge risks and in turn all our deposits if any (though very unlikely – but better not say that after Lehman).
There are many issues here and one of which is the low interest rates in Singapore. I agree it has been too low and did , in my view, contributed partly to the rapid rise of property/rents as they allowed more foreigners in and they took advantage of this cheap funding. There is no monetary policy here (officially declared?) but an exchange policy as replacement. Don’t forget, the low interest rate regime works into the hands of paying low rates on CPF to the detriment to account holders but also has a positive effect if you consider most people borrow for the purchase of their homes? I guess the difficult job here is to split the speculative purchase vs the home property. Maybe that’s something that can be done by banks increasing the risk premium on 2nd/subsequent properties? I am a believer in charging a right price and in times of inflation over the past year, I do not agree to the seemingly artificially low interest rates here. Depositors have been suffering a negative real rate of interest on their deposits for too long i.e. Inflation – Deposit.
Hi TKL,
thanks for the insightful article, to bring to light the pros and cons of guaranteed bank deposits. if the article was to be published earlier, it would have set netizens thinking if the guarantee was essential.
since the policy is already enforced, the guarantee is unlikely to be withdrawn now. but since you have brought up the issue, there are some points that i want to comment on:
“If the Singapore Government does not give this guarantee, some of the deposits in Singapore will flow to Hong Kong, Malaysia or other jurisdictions. To keep the money in Singapore, the banks have to offer higher interest rate, maybe 3%, 4% or 5%.”
singapore government fear is understandable, since huge deposits have been placed by foreigners in banks based in singapore (sources needed), most likely due to the socio-political, economical and currency stability [1]. it’s very likely the absence of guarantee will lead to capital flight out of the country. but i am doubtful that singapore banks will increase in interest rate to draw foreign capital.
interest rate in singapore over the years is among the lowest in the world. however, we were still able to attract capital into the country due to reason stated in [1]. this shows that capital inflow into singapore is relatively interest rate (i/r) inelastic (ie not largely influenced by i/r changes).
look at the appreciation of japanese yen (JPY) against other major currencies in recent months. though the i/r in japan is low, people are still buying yen. in the current credit crunch, there’s a this “flight-to-safety” phenomenom. investors are risk averse; money goes where the investor feel safe.
“Why should tax-payers bear the brunt of the failures of the banking industry? The bankers are getting good remunerations and good perks and yet still fail to deliver. They should return part of their earnings to society and NOT expect the society to bail them out.”
agreed. the bankers have been earning exhorbitant salary and bonuses in the expense of the their customers. sometime, i would wonder if they are worth that much. but on the part that they should “return part of the earnings to the society”, i wonder how we can enforce it? maybe you have some ideas?
“I hope that you can convince our government to be a little less pro-business and a little more pro-people. ”
fully agreed. but the government has a tough job balancing the two. singapore is a small economy and if we depends on foreign investments to survive in this competitive world. but from the policies set, we can see that the government has been too obsessed with attracting foreign investments and has neglected its citizens’ needs and concerns. we can see that from the handling of Lehman minibond case and the recent price hike. it’s more evident when we see the number of brain drain every year.
“I like the interest rate to be high. I totally agree that interest rate has been far too low for retirees and savers. Cheap loans have led to large increase in property prices.”
it is heartening to see that TKL has a empathetic heart that take cares of our aging population. high i/r favours savers and defavours debtors. i would like to see a higher interest rate too. but is it possible in singapore? similar to japan, singapore is a saving nation. if the banks are able to get credit at a lower rate, why would they raise interest rate?
hope the discussion will bring up more ideas for the issues mentioned…
in HK, i believe the guarantees only go to local HK banks and residents of HK.
in my mind, i was assuming that deposit guarantees would imply, say, a POSB type of bank (which we no longer have, thanks to the folks at Temasek who wanted DBS to have money to compete better, at the expense of the people),
a guarantee for the working class folks (who’ll suffer most if a bank fails), or
that the guarantees are only for savings/ FD accounts, or
or guarantees only for Singapore citizens/ residents.
But if the deposit guarantee goes all the way up to include foreign assets, then thats a fine line we’re taking. I then agree with Mr Tan’s assertion that somehow, if Singaporeans as a whole has to undertake the risk of guaranteeing foreign money, they should also be given the rewards.
otherwise, i say the guarantee should only go to Singapore citizens and residents.
should guarantee but if anything happen then ministers should folk out their savings to help any crisis that happen.
Here are the details of the guarantee by the Sg Govt
> The Singapore government guarantee all Singapore dollar and foreign currency deposits of individual and non-bank customers in banks, finance companies and merchant banks.
> The guarantee would be in place until Dec 31, 2010, and will be backed by $150 billion of government reserves.
> The government’s guarantee will cover deposits in any currency held in savings accounts, fixed deposits, current accounts and under the Supplementary Retirement Scheme. But it does not include any structured deposit and any deposit which is pledged, charged or secured as collateral.
> It will also be extended to deposits placed with credit cooperatives registered with the Registry of Cooperative Societies. Currently, there are 41 credit co-ops with more than 200,000 members.
> Also covered are all depositors, big and small, corporate and individual, including those under the current Deposit Insurance Scheme administered by the Singapore Deposit Insurance Corporation, which will now enjoy protection on the full amount of their deposits.
> Total amount on deposit is SGD 700 billion.
> ‘The president has given his concurrence for the government to provide such a guarantee.’
> The MAS cautioned financial institutions not to misuse the guarantee to take on risky activities.
The reserves are a last line of defence but not the only line of defence. Bank capitalisation together with cash flows will determine if deposit withdrawals can be met.
It should be noted that there is not enough reserves to meet all withdrawals. Hence, the MAS makes one significant assumption with the guarantee, that a total meltdown will not occur.
Unfortunately, the one situation that the reserve will most likely be needed is when a run on the entire banking system occurs. A run on a bank will occur only upon a meltdown which is what happened in the US and UK. Hence, such a backing becomes pointless cos the reserves will not be able to meet all obligations. To me, that’s really a cosmetic exercise.
There needs to be a bit more debate on the scenarios. For example. If only 1 bank collapse out of financial greed eg a Nick Leeson event. Will reserves be used to meet such obligation? If so, isn’t that taking money from everyone to pay a few people’s bad decisions to put money into an insecure bank?
In such cases, the bank should be allowed to fail. But in so doing, hard-earned taxpayer monies will be used to fund the deposits lost.
It is now imperative that bank exposures must be monitored and managed. How? See post 2. That means significant regulation. Unfortunately, significant regulation will mean higher compliance cost. That will mean more expenses which can only be borne by one entity, the consumers. Looks like my $2 monthly payment for account is likely to go up liao….
After some thought, I would prefer deposit guarantees to be extended only to banks which match a certain risk profile eg investment in lower risk products whose loan default doesn’t exceed a certain % and do not invest beyond Y% of its funds.
Any bank that exceeds this risk profile shall be provided Z days to unwind failing which, the deposit guarantee should be withdrawn.
TKL
So you mean government guarantee is given free of charge? Either dumb or full of generosity.
The system is going for a ‘reset’ and should be allowed to run its course. Without this reset the free market capitalistic system cannot renew itself.
All government schemes are ultimately borne by the taxpayer be it from yesterday, today or tomorrow. Why should the other 3.x million people bail out the 10k or so who are affected? 10k persons with 500M investments? That’s a cool 0.5M per head!! They must have other stashes elsewhere because this is cold hard cash!! The probability of their illiquid assets (such as property) probably exceed this cash value. And to get to this position it is also highly probable that these persons are perhaps more ‘naturally gifted’ then the average wage earner drawing some 3k a month. So now they want to have the cake, to eat it, and to get a share from someone else’s cake as well?
Reminds me of the case where someone picked up a used fridge from the Salvation Army in a Mercedes Benz some years back …. f***ing disgusting …. these people should be dispensed with a moral bullet which costs only 30 cents.
Perhaps now this bunch of 0.5 cash asset persons have an opportunity to savour some ‘hard luck case’ times. Nothing better at ‘delivering’ empathy then to be directly in the shoes of those whom you shun and criticise.
Actually, no one really knows how the guarantee will work cos its all theory at the moment. It could be a liability buy back eg cash exchange for shares (which could theoretically be valueless or in the case of Lehman, take more time to unwind) or provided as a short term interest bearing loan for banks to meet its fund obligations (eg AIG).
If Soh Lung is right, many governments are either dumb or very generous. Germany, Australia, NZ, Thailand, Malaysia etc did that as well to name a few.
It is interesting in Australia’s case that a 0.5% insurance fee is levied on deposit amounts above A$1m. I find it strange as banks can just reduce the interest provided (unless as in Singapore’s case, the interest is so low that cutting it anymore makes it even more pathetic than it really is).
‘I understand that affected investors are anxious and looking for solutions. Unfortunately, I think some of the advice they are receiving is not helpful because it has generated anxiety and confusion.’
Mr Heng Swee Keat
———————–
Whether they guarantee or not is not the issue. I just want to ask. How come the gahmen took nearly 14 days to respond to this crisis? Why did it take so bloody long? This is the part that I have tried to write in and ask, but I was told to redirect my question here there and nowhere. Why did it take so long to react to what is obviously a very simple matter. If gahmen say they are clear now, then why did they take so long to respond? Who is the one generating anxiety and confusion? My parents invested in mini bonds and as for my mum she can even walk without the aid of my maid. Both of them made their way down to Hong Lim. They are old so you can imagine, its like a trip from here to the end of the world. Why did they even have to make such a trip in the first place?
Because when they needed direction, there was none. When they need someone to clarify there was none.
I think if you want tax payers to believe you are worth the millions we pay you then you better start treating us like customers, otherwise just outsource Singapore to the British to run it. From what I see of what they did in Hong Kong and how fast those policy makers reacted there. I think, they seem to know how to manage confusion and anxiety better than our local supermen.
Good for nothing! Tq Mr Tan and TOC
What is remarkable in this episode is that it recorded the fastest U-turn in the history of public administration in Singapore. The day before the announcement of this guarantee, the Minister for Finance was still adamant that there was no need for such a guarantee!
After reading your article, my feeling is that your article is out to provoke rather than to inform. It seems that the details of the financial guarantee was deliberately left out in the main article and left readers anxious, bewildered and confused. Why are such important details referred only by way of comments?
In my opinion, our Govt has done well in their responses to this financial crisis.
Their decision to guarantee bank deposits is clearly a measure to reassure the man-in-the street that their money is safe and to prevent a bank run. Too much should not be read into whether this measure is favouring the foreign investors and the rich over the general public. We seem to damn the Govt if they do, and damn the Govt if they don’t! It is obvious the Govt’s judgement is that a total financial meltdown is unlikely – therefore the question of whether the reserves of $150b being insufficient to cover the total deposit of $700b is only of theoretical importance. The fact that there are no panicky bank runs in Singapore today proves that the measure has been successful.
The correction of the prevailing low interest rate is presently not the priority. We should not judge the situation based on the perceived benefits to our personal interests. The criterion should be the net effect on the whole financial system and our national interests – the priority now is to calm the market and instil confidence.
A delay in response by the Govt only shows that their decisions are not taken lightly or rashly. And their ability and audacity to make U-turns in policies is evidence of flexibility and resourcefulness in the light of the unpredictable global financial climate.
19) Singalong on October 29th, 2008 4.54 pm After reading your article, my feeling is that your article is out to provoke rather than to inform. It seems that the details of the financial guarantee was deliberately left out in the main article and left readers anxious, bewildered and confused. Why are such important details referred only by way of comments?
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I find your response totally incomprehensible as I feel that the article was very good information based on the author’s personal goodwill to share with the less financially savvy (and vulnerable) people his analysis and concerns.
We should be more open minded in accepting article contributions to this blog which benefit more people than not.
Singalong, I appreciate your concerns but that is unfounded. You might have been too pessimistic and negative thinking but I can understand your plight. Singapore is now in Recession and DBS has announced bad news to the majority of his investors and TC has millions exposure to lehman thingie.
Please do some yoga, it helps one think more positively. Else, listen to the radio. I feel good after that.
20) smallvoice585 on October 29th, 2008 5.38 pm
Don’t you think that your piece sounds like one coming out from from a class composition. If I need to turn a rock into a piece of cake, I will surely need your help.
“We should not judge the situation based on the perceived benefits to our personal interests.”
Tell that to those “Megabomb” investors and probably in times to come, many of the potentially unemployed over the next months. We really need generous saints like you to help out in this difficult time.
Just hope that your piece is not some mesmerizing diversion from more important matter / action that needs to be looked into.
“The fact that there are no panicky bank runs in Singapore today proves that the measure has been successful.”
Maybe I have missed it. Could anyone tell me whether there are any panicky runs on the banks in the surrounding region.
Thanks for the interesting comments.
In Sydney where I am living now, the govt guarantees all bank deposits by both foreign and local banks. However, after the PM gave the governmental guarantee, alot of Australians sold off their mutual retirement funds and pack their money in banks. Now, to prevent more people from withdrawing their retirement money from investment houses, they have froze withdrawal i.e. no investors can touch their pension funds anymore. This is to prevent further run down on the investment funds and a subsequent closure of the investment houses if alot of investors decide to cash out of their investment. We see that happening now worldwide except maybe Singapore and a few other countries.
Anyway without the government’s guarantee, I believe people will still park their money in our local or even foreign banks. We have a reputation for being stable and solid. I have Indonesian friends preferring to leave their money in our local banks despite the sticky minibond debacle than withdrawing their money and putting somewhere else. Tell me frankly where among our other neighbouring countries is the safest to place your millions?
To smallvoice585, Comment #20,
Yes, MAS and the govt may have acted appropriately when the issue came up.
What was lacking is possibly transparency, and immediately being upfront to tell the public of actions that both are taking. i.e. they need better PR and quick information to the public when issues such as these come up.
Their initial muted announcements and “individuals should take up the issue with banks directly” just smells of tai-chi, or looking to cover its own ass before making any announcements.
What if MAS has said this instead “Yes, there’s a big issue here. We are looking into whether there’s mis-selling, or whether we, as an organisation, have failed in policing the industry enough.
Nonetheless, we will do whatever we can to protect the interests of all parties, be it investors and the financial institutions, and whether we have the right safeguards in place so that this situation would not repeat itself. A taskforce has been set up. Any aggrieved parties can make their complaints at..
We target to offer solutions to affected investors by…[date].”
How different do you think will the reaction be? Mr Tan wouldnt even have to blog or do the Hong Lim Park thingy if MAS reacted more positively.
Nice to know my money in HSBC is guarenteed by govmin.
As S’poreans know, foreigners here are treated better than S’poreans. Ask all the FTs.
Yup, foreigner’s money are guaranteed by Singapore reserves provided by us generous Singaporeans. I would normally say ironic but its been a consistent practice.
Foreigners stay in Singapore enjoying local benefits whilst we, the citizens, play security guard and forced to go RT. Do foreigners need to go RT? Sigh, my thanks to those guys who do RT.
I’d really like to have a government that puts Singaporeans first (at least in thought but more in practice).
FTs provide lower cost for business owners , CEOs and top level executives can easier show growth and get fatter bonus.
Singaporeans no need worry, as long as we defend all people living in singapore, singapore will be safe. Our frontline people are talented.
Dear #24 aygee and others,
Transparency is good, but only insofar as if it helps to clarify matters and establish mutual trust. It does not mean that every deliberation and every consideration entered into is publicized for media consumption.
If you are the Govt and you do that, I will not trust you. Govt policies are not determined by public auction! The public seems to have pre-judged the mini-bond issue – the general feeling is that the FIs are the bad guys, the retiree-investors are the poor victims and Mr Tan Kin Lian is the greatest hero in Singapore’s history.
Let me caution you that things are not as simplistic as they appear. Are ALL mini-bond sales fraudulent? Are they being deemed mis-sold only when there are losses, not when there are gains? Is it possible that burnt investors now act blur to try to get their losses invalidated? By having unwittingly stirred up emotions at the Speakers’ Corner, is Mr Tan doing more harm than good to the situation? Etc, etc …
So knowing that the Govt cannot be embarrassed too often, they must tread carefully. I can fully understand their position.
Mr Tan, you write very long. I lost at the 2nd paragraph. I do not want to be confuse by all your financial terms – “debt securities”, “basis points”, and other ideas about excessive foreign funds being parked depressing the interest rate. Wat you talking? Sorrie my english no good and I am in the non-vulnerable group – I sec 2 drop out.
I tink what you want to say is: money guarantee or no guarantee; up interest rates or no hike. simple: both oso i want.
Of course everyone wants guarantee and up interest rates – got safe money and free money, who dun want?!
Anyway, it’s our own money why it is not safe in our banks in the first place – I thought all the while my money in POSB is safe – if it you mean zhen hu open the bank, I put money inside not safe? Sure guarantee one what, where got no guarantee?
after reading your piece, I support the PAP government’s guarantee. If PAP don’t guarantee, why will happen to my money if bank go bust? Certainly not Mr. Tan or TOC. So PAP is guarantee so that my money is safe.
PAP government also need to increase interest rates for savings. Or else, put money in bank for what? But interest rate so little now so must increase. Interest rate should match inflation – say 6% for everyone.
I agree with PAP looking after our money, we don’t have to worry – got guarantee and good interest rates, no need to take on high risk products.
All the financial problems we see today is because PAP did not guarantee our money (and all the while I was misled to think my money is safe in Singapore banks) and interest rates low.
when i open savings account with POSB long long time ago, i did not remember they say my money inside is not guaranteed- is it they mis-sell me?
if zhen hu guarantee my money and up interest, i will vote them next erection, no need to upgrade my hdb.
I respect people who state their views and disclose their real name. They can disagree with my views – it is all right. At least, I know that we are debating an issue and not engage in personal or defamatory attacks (while remaining anonymous).
There are merits and dangers in the Government guarantee of bank deposits. There are various ways to carry implement this measure. Some of the issues are:
> should it protect Singaporeans or foreign depositors or all?
> should it cover Singapore or foreign owned banks or both?
> should there be a fee for the guarantee?
> how does the Government or MAS ensure that the banks do not carry out “risky activities”?
I was able to find some details, which I put in my main article and in a comment. (I do not know why an anonymous person should attack me on this trivial matter, unless this person has an ulterior motive). Some people knows the detail and can add them here.
I do not like to attract too much money deposited by foreigners in Singapore. We do not need the money. They only help to depress the interest rate in Singapore to the detriment of our retirees and savers. The banks earn a large margin, but the profit does not benefit Signaporeans as a whole. Even our local banks (such as DBS) has a high foreign ownership.
I am beginning to see more people using their real names in Online Citizen. Welcome! And congratulations for your courage to contribute to an open and sincere debate.
Reply to Teo Soh Hung (#14)
You asked if the guarantee is given free. I searched for the answer to this question. I could not see any mention of any fee that is being charged. It is likely that the guarantee is given free.
The Government thinks that the risk is small, but I am not sure that they have the means to monitor and manage the risk and keep it as a small, remote risk.
I see from the statement that the Government urges the banks to “avoid risky activities”. I wonder how this can be achieved. The banks could take big bets on the derivative market and credit defaults swaps and lose a few billions in deposits quite easily.
Here is a horror story – it is just imagination at this time. Suppose that a bank already has a few hundred of billions of toxic products and is already insolvent. Suppose they take in a few billions of deposits in Singapore. Suppose they have a clever way of transferring the toxic products into Singapore (and still owned by the bank). And these toxic products are declared to be losses of the Singapore operations. Will the guarantee be called? Will this be like the minibond crisis, but done on a scale of 100 times?
I will sleep sounder if I know that there are ways of monitoring and managing the moral hazard of this guarantee. I wonder if our MAS has the expertise and resources to identify and manage this risk?
http://www.sgforums.com/forums/10/topics/335291?page=1#post_8523640
In the Article :
PM Lee says buyers of Lehman-linked products should seek resolution with banks first
By Channel NewsAsia’s China Correspondent Wong Yee Fong | Posted: 26 October 2008 2203 hrs
It was reported that , i quote , ”
“I think this is a very difficult and not very satisfactory way in the long run. First of all, government should not be making decisions for individuals; individuals should have the right to decide for themselves, their circumstances, their preferences, their needs. And secondly, the government is not in a position to guarantee what is safe and what is not safe because there is nothing which is 100 per cent safe,” he said.
Prime Minister Lee said the government’s role is to make sure that the financial system proceeds fairly and properly, not to guarantee the outcome but to make sure that its people know what they are doing. For the investors, this would mean that they are properly educated and understand the products they buy and their rights as consumers. ” “, unquote.
By this, I like to clarify, does he mean the same for TC’s Lehman investments as well?
Recently, a TW political commentator praised Singapore to have the ability
to use the People’s CPF related money to invest. She/He admitted that such things
could never have happened in TW. I wonder what does she mean by that ?
Ok, investments cannot be guaranteed safe is one thing, but who is RESPONSIBLE and ACCOUNTABLE for an investment success ? Likewise, WHO is RESPONSIBLE and ACCOUNTABLE for an investment fiasco? Is this a logical question begging to be asked? If you know better than me, kindly reply.
As I feel that it would take a while or long time, for our alternative party to raise this question, I wonder is it a way to better utilize our Hong Lim Park by holding a discussion with the public on this topic which seems like a topic of public interest.
Unfortunately, I am not an eloquent speaker. I hope the Linguistically Bombastic, ABLE, CAPABLE, Knowledgeable and Compassionate and BRAVE could kindly step forward and contribute to the discussion. Else, things will remain as it is, as in no one from the public will discuss the issue to get clarifications.
Ideally, I hope the authorities can send their representatives who has the power to make decisions to discuss on ‘live’ TV, unrehearsed.
truely yours,
wong khia soo
To smallvoice585
My opinion is that the Gov did not do well. Considering the pay and the praises of SG being 1st class, etc. It should ve been better. So far, most of the actions are following, reactive, etc and usually weeks later. This kind of response is sincerely pretty unacceptable.
“Too much should not be read into whether this measure is favouring the foreign investors and the rich over the general public. ”
This is important too as the guarantee comes from our pocket, u, me, my neighbour, etc. If this change then yes, (Do not use our money) then the Gov can jolly well favour whoever they wan. But if the PM says they cannot make decisions for us, then i would say, FAVOUR ME…
“therefore the question of whether the reserves of $150b being insufficient to cover the total deposit of $700b is only of theoretical importance. The fact that there are no panicky bank runs in Singapore today proves that the measure has been successful. ”
If u recall, only a very small handful of pple predicted ML to fall. Most pple in the world, did not ve a clue to wat hit them. ML’s fall. So now we are back to sq 1?? The qn of whether 150b is sufficient is only theoretical importance. I think not, as ML’s fall was only a theory which happened and cause the happenings around u and i today.
Lastly
“A delay in response by the Govt only shows that their decisions are not taken lightly or rashly. And their ability and audacity to make U-turns in policies is evidence of flexibility and resourcefulness in the light of the unpredictable global financial climate.”
They didn’t delay in response, they responded bloody quick by saying “You go to the bank yourself and settle” Tat was the response in double quick time. They weren’t slow at all. The complains now is They did not take apporiate responsibility.
As for the U-Turns, your way is one way of saying it. Most pple Online. No, i shouldn’t say most, i should say, my personal opinion is that if HK DBS, HK MA do it, and SG DBS, MAS dun do it, we slap ourselves.
So i agree with Mr Lucky Tan on 1 thing which is, those who invested in SG should be thankful that it happened in HK too.
Lets give our govt a chance to resolve the issue. I think MAS is working overtime to resovle this issue with the banks. Already I know one stock broking firm is buying back some of the failed investment products from vulnerable investors. Nevertheless, the percentage is so low that I am afraid other big banks may use this yardstick to only buy back wholesale from investors who are vulnerable.
The rest of the investors may have to resort to legal action or let the banks decide for them.
This is the biggest fall out of any financial crisis – far bigger than all that we have seen. I believe our govt will learn from this episode and hopefully there is no repeat of such a crisis ever again. Many people have lost tons of money now.
All along, our govt has being slow to react to issues – that is their strength but also can be a weakness. They are not used to acting fast and only do so after alot of meeting and deliberation. If one can judge from the HK authorities, they are very fast and decisive when it comes to handling the mininond fiasco.
Let us give our govt a chance to work things out.
Hi Gilbert Koh (#34)
So far, MAS is resolving the claims of the “vulnerable group”. I suspect that it represents less than 10% of the investors.
The remaining 90% are anxious that their claims will not be handled fairly. I agree with their anxiety.
The Petition ask MAS to investigate if there are wrong doings, i.e breaches of the two Acts. If so, MAS has promised to take appropriate action according to the law. I hope that they make some statement on this matter soon. It has been 4 weeks since the Petitio was lodged.
In Hong Kong, the monetary authority discovered 40 cases of breach of the act, and have passed the complaints to the securities commission. I hope that MAS will make some statement about this matter soon. It will array the fears and uncertainty faced by the “non-vulnerable” group.
Thank you for posting with your real name.
I’d recommend that the MAS or those who are interested in Canada’s gurantee schemes of bank deposits, etc can log in to its website at:- http://www.cdic.ca that stands for Canada Deposit Insurance Corp. run by the Federal government.
It’s a very powerful tool introduced by the federal government and that’s why the recent financial tsunami didn’t hurt too many banks and depositors in Canada.
Perhaps, Kin Lian can have a look at it and give Singaporeans a gist of the various schemes.
It is wrong for the bank to collect fixed deposit at 1% and lend out at 5% to earn a margin of 4% and benefit from the “free” government guarantee.
It will be worse, if the bank engage in risky activities, such as speculate in derivatives, credit default swaps, trading in financial assets. About 10 years ago, Nick Leeson brought down Barings Bank by trading in futures and lost a lot of money.
Already, the Government has given the guarantee, so it is important for MAS to be able to monitor the operations of the banks closely. They cannot just advice the bank to “avoid risky activities”. MAS has to be more vigilent.
Perhaps, MAS can introduce a risk based charge now, just like what is done in New Zealand. If the bank does not agree with the charge, the bank can refuse to take the deposits. This is a fair approach.
The charge should be based on the credit rating of the bank. If they have lower capital and lower rating, the charge is higher. In the case of New Zealand, the charge varies from 0.1% (i.e 10 basis points) to 3% (i.e. 300 basis points) depending on the financial strength of the bank.
I prefer another approach. The savers can buy Government bonds for 1 to 20 years and earn the market rate of interest (say 2% to 4%). The government lend the money to the bank at this cost plus a credit spread (say 0.1% to 3%) depending on the credit rating of the bank.
This approach gives a better interest rate to the savers, and locks up the money for 1 to 20 years, which is more suitable for the bank to lend for a similar duration. It avoids the duration risk and also the risk of unexpected withdrawal.
I shall write a separate paper on this matter, i.e. issue government bonds to collect money and lend back to the financial institutions.
And I would buy them. If banks sell them it would benefit many people – after gov bonds are low risk low returns products – good for diversification and general public.
An article posted on a public blog should be opened to public scrutiny and comments. It’s difficult to understand why one is emotional and suspicious whenever there are differing views and opinions. Why can’t one be objective in the face of any feedback?
What is trivial is relative. What excessive fund we are talking about? Did we lose sight of the fact that Sg is currently facing technical recession? Are we unaware that the world is struggling with global financial crisis? There is a global credit crunch! There is unprecedented globally co-ordinated governmental intervention to prevent systematic collapse in the banking systems. US has offered US$30 b swap facility. Surely, Sg, an open economy cannot claim to be immuned from the rest of the world.
No one is perfect, no matter how experienced one is!
To Singasoft (#19)
19) Singalong on October 29th, 2008 4.54 pm After reading your article, my feeling is that your article is out to provoke rather than to inform. It seems that the details of the financial guarantee was deliberately left out in the main article and left readers anxious, bewildered.
You appear suddenly with a statement that attack me, saying that the details are “deliberately left out in the main article”.
I do not recall seeing you before. But you do remind me of another person who has been attacking my views on all possible occasions. This person has probably changed his name and continue to attack me under another name.
If you wish to engage in a debate, it is proper that you use your real name and occupation. If you have a different view, you can state your view and avoid attacking or making judgement on other people.
I received this message from a friend in New Zealand.
Hi Mr. Tan,
The side effects of the deposit guarantee schemes are starting to surface across NZ and Australia:
1) http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10539859 (29 Oct)
Quote:
More than $1 billion has been frozen in mortgage trusts after AXA New Zealand yesterday locked up three of its funds.
AXA said the suspensions were because of confusion over who will be covered by the Government’s deposit guarantee scheme and fears that investors will take money out if it is not guaranteed.
The funds have a combined value of $225 million from about 5000 investors.
2) http://business.theage.com.au/business/go-to-centrelink-swans-advice-on-frozen-funds-20081023-57gk.html (24 Oct)
Quote:
PRESSURE on the Federal Government over its bank deposit guarantee has escalated after three big financial institutions hit with a spate of withdrawals by customers last night froze their accounts.
Tens of thousands of Australians, many of them retirees, are now unable to get immediate access to their capital after AXA Asia Pacific, Perpetual Investment Management and Australian Unity suspended withdrawals from some funds.
Treasurer Wayne Swan responded last night by advising people adversely affected to go to Centrelink to see if they were eligible for income support.
Thanks.
Regards,
Hang Lian
Some Singaporeans said, “I put my money in Singapore banks. I want to sleep well with the Government guarantee”.
I suggest that these Signaporeans should buy Government bonds and enjoy a higher interest rate, and have the Government guarantee. Why allow the banks to make profit on the guarantee that is footed by Singapore taxpayers?
I am concerned that the Government guarantee is used to guarantee the foreign banks operating in Singapore and also to attract foreign depositors to keep their money in Singapore – to depress our interest rate, and to allow the banks to make more profits.
And, if the bank take high risk with the money (e.g. to buy deriviates or future trading), the Singapore taxpayers will have to bear the loss. And it can go into billions of dollars.
Is it worth it? Does it benefit Singapore?
Does this statement apply to the risk of guarantee bank deposits in Singapore?
Nobel Winner Aumann Says Bernanke, Paulson Steps `Not Smart’
Nov. 2 (Bloomberg) — Robert J. Aumann, the Israeli economist who won the 2005 Nobel Prize in economics, said the steps taken by Federal Reserve Chairman Ben S. Bernanke and U.S. Treasury Secretary Henry Paulson to save financial markets “weren’t smart.”
“The intervention by the regulators to save the U.S. economy will lead to further bankruptcies of banks and insurance companies,” Aumann said. “They are only encouraging institutions to take more uncalculated risks.”
The crisis in the financial markets was caused by the incentives provided to managers of banks and other financial institutions that caused them to act to their own benefit and not the banks’, he said. Bonuses were given on the basis of loan sales, without considering who the borrowers were, he said.
Aumann, who won the Nobel Prize for his work on game theory, said there is “no financial crisis” in Israel. The Israeli government’s decision not to intervene in the financial markets was correct, he said.
The crisis in the financial markets was caused by the incentives provided to managers of banks and other financial institutions that caused them to act to their own benefit and not the banks’, he said. Bonuses were given on the basis of loan sales, without considering who the borrowers were, he said. – Robert J.Aumann
How to reward prudence? There are 2 forms of reward: (1) recognition; (2) financial. How to balance the weight of each reward type in the risk manager’s compensation while risk takers are awarded handsomely for their success.