DEPOSIT INSURANCE IN VIETNAM: RATIONALE, REGULATIONS, AND

REFORMATIONS
TEAM 4

TABLE OF CONTENTS
A. INTRODUCTION
B. RATIONALE FOR THE ROLES OF DEPOSIT INSURANCE AND DIV
I. Overview of Deposit Insurance
1. Deposit Insurance:
a. Definition of deposit insurance:
b. How deposit insurance works:
c. Types of deposit insurance:
d. Functions of deposit insurance:
e. Advantages and disadvantages of deposit insurance:
2. Deposit Insurance Organization
a. In the world
b. In Vietnam
II. Importance of Deposit Insurance in the financial system
1. Practical illustration:
a. In the world
b. In Vietnam
2. Conclusion of the Roles of deposit insurance in the financial system
C. REGULATIONS OF DEPOSIT INSURANCE IN VIETNAM
I. Regulations of DIV:
1. Insured deposit
a. Insured deposits:
b. Uninsured deposits
2. Deposit insurance premium
a. Deposit insurance premium
b. Premiums of inadequate and late payment
3. Deposit insurance payment
a. Arising time of obligations of deposit insurance payment
b. Term for deposit insurance payment
c. Limit of deposit insurance payment
d. Paid deposit insurance payment
e. Treating the deposit exceeding the limit of deposit insurance payment
II. Comparison between DIV’s regulations and other deposit insurance organizations
over the world
 1. Insured deposits
2. Deposit insurance premiums
3. Insurance payment
D. REFORMS FOR DEPOSIT INSURANCE IN VIETNAM
1. Learning from the acts of FDIC in deposit guarantee and protection
a. Successes and Failures of FDIC (Mai)
b. Lessons for Vietnam
2. Proposed reforms for DIV
a. Develop the deposit insurance policy, legal framework
b. Enhance the financial capacity of the deposit insurance institutions
c. Strengthen communication activities on deposit insurance
d. Focus on implementing the digital transformation
E. CONCLUSION

A. INTRODUCTION
The recent financial turbulence provides supervisory, regulatory, and other financial policy
authorities with a timely opportunity to review existing regulatory structures underlying the
operation of financial markets, including those related to the financial safety net. One specific
aspect of financial system policy that has been in the spotlight of late is deposit insurance, the
specific aim of which is to protect retail depositors and prevent bank runs. In Vietnam, the
deposit insurance system was established in 1999 and has been in operation since 2000. So with
the information researched since then, the present presentation will focus on the 3 main topics of
Deposit Insurance in Vietnam ( DIV ): Rationale, Regulations, and Reformations.

B. RATIONALE FOR THE ROLES OF DEPOSIT INSURANCE AND DIV

I. Overview of Deposit Insurance
1. Deposit Insurance
a. Definition of deposit insurance
Deposit insurance is a type of insurance that protects depositors against loss in the event of a
bank failure. It was first launched in the United States during the 1930s Great Depression to
shield bank depositors from loss.

b. How deposit insurance works:

Chart 1. Deposit Insurance works within the involved organizations
Source: Duong Nu Nguyet Minh - Analyzing bank employees’ knowledge of Deposit
Insurance of Vietnam to ensure its effectiveness
 In the figure above, deposit insurance is a committed agreement that is done by the insured bank
and the deposit insurer organization to protect the bank depositor. Particularly, bank depositors
save their deposits in an insured bank, and the insured bank pays an insurance premium to the
insurer organization. In case the insured bank goes bankrupt, the deposit insurer organization
returns the deposits to bank depositors

c. Types of deposit insurance:

There are some differences between implicit and explicit deposit insurance systems, their main
objectives are basically the same, that is to protect depositors and enhance financial system
stability.
Table 1. Comparison between implicit and explicit deposit insurance
Implicit deposit insurance Explicit deposit insurance

Protecting depositors and enhancing financial system stability.

Goals

Existence of rules and procedures

No Yes
governing deposit protection

Legal obligation to protect

Obligation to protect to depositor
depositors up to the
No legal obligation; protection is at
insurance limit; insurer may
the discretion of the government
have discretion to protect
uninsured depositors

Typically banks through

premium payments; the
Ex ante funding None government may provide
initial capitalization and
possibly regular payments

Funding in event of bank failure ● It is not prefunded, the ● From the pre-fund
government will have to ● Shortfalls may be
determine a source of covered by special
 assessments levied
funding.
on banks or by loans
● The fund mostly comes
or additional capital
from the government’s
from the
budget or the Central Bank
government.

● Limited coverage
● Moral hazard –
● Uncertainty about how and explicitly protected
when depositors will be depositors may have
compensated fewer incentives to
● Funding depends on the monitor their banks
Drawbacks government’s ability to and that banks have
access funds after a bank more incentive to
failure as a result in some take excessive risks
countries depositors have when depositors are
not been reimbursed at all protected

Deposit insurance is particularly widespread among high-income countries. About 84 percent of

countries with high incomes had explicit deposit insurance by year-end 2013. Israel and San
Marino are notable exceptions among high-income countries with implicit deposit insurance.
Chart 2. Explicit deposit insurance by Income Group, 2013
Source: Asli Demirgüç-Kunt, Edward J. Kane, and Luc Laeven - Deposit insurance
database in 2013
Similarly, there is regional variation in the existence of explicit deposit insurance. In Europe,
almost all countries (or 96 percent of countries) have deposit insurance (the only two exceptions
are Israel and San Marino). There is more than 50% of countries in Asia-Pacific, which have an
explicit deposit insurance system (Vietnam is one of these countries) Explicit deposit insurance
is less widespread in other parts of the world, with only 24 percent of countries in Africa having
explicit deposit insurance
Chart 3. Explicit deposit insurance by Region, 2013
Source: Asli Demirgüç-Kunt, Edward J. Kane, and Luc Laeven - Deposit insurance
database in 2013

d. Functions of deposit insurance:

Deposit insurance plays a crucial role in maintaining depositor confidence and preserving
financial stability. By protecting retail and other small depositors in a bank failure, deposit
insurance minimizes the risk of deposit runs and mitigates contagion risk. If depositors trust the
insurance, they are less likely to run on a bank and exacerbate liquidity stress, it also prevents
panic from spreading through a financial system, which would undermine recovery or resolution
measures.

e. Advantages and disadvantages of deposit insurance:

Depositors:
● Advantages:
- With a deposit insurance system in place, these households and businesses can “go about
their business” with some assurance that their funds are secure
● Disadvantages:
- Being insured, customers will take little or no interest in the way that the bank lends and
takes risks. As a result, banks are encouraged to take bigger risks when their depositors
 are covered. This is known as a ‘moral hazard’ because they earned profits using other
people's money — whether it was the depositors', money that banks borrowed, or
stockholders' money
- It could increase the prices of banking services if the banks impose the financing costs of
the insurance mechanism on depositors
- It weakens depositors’ incentives to keep an eye on the risk posed by management’s
actions and to take corrective action, such as withdrawing deposits when the danger rises,
reducing market discipline.

Insured institutions (insured banks):

● Advantages:
- Creating public confidence in the safety of bank deposits, which reduces the likelihood
that depositors at an individual bank will panic and withdraw funds suddenly.
- Deposit insurance can level the playing field and allow smaller banks to attract deposits
and thus foster greater competition in the system. Deposit insurance can also help private
banks to compete against state-owned banks, which typically benefit from explicit or
implicit guarantees from the government. Similarly, deposit insurance can help domestic
banks to compete with foreign banks that benefit from insurance coverage from their
home country.
● Disadvantages:
- 'Deposit insurance' cannot be based on a probabilistic assessment of default. Even if the
likelihood of default could be determined with accuracy, existing deposit insurance
institutions such as the FSCS and the FDIC cannot charge sufficient premiums to cover
the potentially large losses that could arise in a banking crisis - such as the one
experienced in 2007 - which affects a significant proportion of their insured entities. To
do so would make the insurance too expensive for banks to buy

The economy:
● Advantages:
- Deposit insurance thus works together with the other elements of the safety net to contain
potential threats to individual institutions or groups of institutions. In this way, deposit
insurance supports economic stability by helping to avert interruptions in bank liquidity
and credit availability that could otherwise result from disruptive bank runs or bank
failures.
- To the extent that countries lack explicit formal rules to deal with failing banks, the
establishment of a formal deposit insurance scheme can provide an opportunity to
establish rules and regulations to quickly resolve and close problematic banks.
● Disadvantages:
- This assurance, as mentioned in the previous section, brings confidence to the market, but
at the same time distorts incentives of both bank managers and depositors, resulting in the
well-known economic problem of moral hazard. It means the bank has incentives to take
 on additional risk. They can do this either by investing in riskier assets or by increasing
their leverage by reducing the amount of capital and liquid reserves they hold. These
actions can lead to a bank’s failure, which affects the economy of the country. Moral
hazards can also affect regulators and politicians.

2. Deposit Insurance Organization

a. In the world
- IADI: The International Association of Deposit Insurers (IADI) was established on May
6, 2002, with the aim of sharing deposit insurance experiences with the world and making
contributions. on the stability of the financial system as a benchmark for deposit
insurance with global members. IADI is a non-profit organization incorporated under
Swiss Law and a separate legal entity with headquarters at the Bank for International
Settlements (BIS) in Basel, Switzerland. IADI has four categories of participation, 94
Members, 12 Associates, and 17 Partners. IADI offers a variety of training programs as
well as develops research and guidance on topics in the field of deposit insurance.

Since its inception, IADI has provided valuable information and guidance in the field of
deposit insurance. In particular, General Guidance on Early Detection and Timely
Intervention for Deposit Insurance Systems. IADI members will have chances to access a
members-only database where important, timely research and guidance are available.

As members of IADI, organizations have the opportunity to develop bilateral

relationships through forms such as signing cooperation documents, and bilateral
agreements on issues of mutual concern. This is especially beneficial for deposit insurers
that are still in the process of being mature like DIV to learn from experience and
development from deposit insurance with long histories.
Chart 4. Organizational structure of IADI
Source: DIV
- APRC is one part of the Regional Committees of IADI, with 22 members, including
regional deposit insurance ((including DIV) as well as a number of other international
organizations. The conference aims to cooperate and share knowledge among regional
member countries that have many common geographical, economic, and social
characteristics.

- Federal Deposit Insurance Corporation (FDIC) The FDIC was created in 1933 to help
foster more trust between consumers and financial institutions. Because of the stock
market crash in 1929, thousands of banks failed. Fueled by fear of losing their money,
bank customers rushed to withdraw their funds from banks which led to the national
crisis. President Franklin D. Roosevelt in June of 1933 signed into law the Banking Act
of 1933, which created the FDIC- the world’s first Deposit Insurance.

The US government does not provide any funding to the FDIC because it is an
independent agency. Therefore, the operating costs are due to the fees collected from
member banks to enjoy insurance services. Some of the other profits are from US
Treasury bonds.

As an important member of IADI, the FDIC not only shares its experiences but also
regularly monitors financial information and activities of financial institutions around the
world in order to detect potential risks and propose solutions in the worst case when a
bank fails.

b. In Vietnam
- History and Milestones
 + Foundation and system development (1999-2004):
The Deposit Insurance of Vietnam (DIV) was established by Decision 218/1999/QD-
TTg dated November 9th, 1999 by the Prime Minister, and officially put into operation
on July 7th, 2000.
The DIV is the only organization that implements policies on protecting the
legitimate rights and interests of depositors; supporting credit institutions in trouble;
controlling and preventing exposure to risks in banking activities.
+ Changing the organizational model, promoting research, proposals, and building the
legal basis (2005-2012):
In 2006, the Deposit Insurance of Vietnam had been restructuring its organizational
structure, then restructuring the process of the regional branch.
In 2006, Deposit Insurance of Vietnam became a member of IADI.
In 2007, the Government of Vietnam assigned the SBV to play a key role in building
up the draft law with competent ministries, departments, and agencies. and the support
from World Bank, Asia Development Bank.
+ Strengthening the organization, enhancing capacity (2013-present):
The Law on Deposit Insurance has officially taken into effect on January 1st, 2013.
March 24, 2016, the Deposit Insurance Corporation was approved by the Governor
of the SBV to open 02 new branches
- Organizational structure
+ Management Council
DIV's Board of Directors has 5 members, including the Chairman of the Board of
Directors and 4 full-time members
The appointment and dismissal of members of the Board of Directors shall be decided
by the Prime Minister at the request of the Governor of the State Bank and the Minister
of the Interior.
+ Executive board
- Consists of 6 members, including the Chief Executive Officer and 5 Deputy General
Directors
- The appointment and dismissal of the Deputy General Director shall be decided by
the Governor of the SBV at the proposal of the Chairman of the Board of Directors.
- The office and professional departments and divisions of DIV have the function of
advising and assisting the Board of Directors and the General Director in managing
and operating the work.
+ Organizational structure chart
 Chart 5. Organizational structure of DIV
Source: DIV

+ Controllers: have 3 members slaf's purpose is to monitor the activities of the leadership
The internal audit committee performs the function:
Check and supervise activities to serve timely for making management and
operating decisions; promptly detect, prevent, limit, and overcome errors and risks in
operation; smoothly, safely and legally all activities of Deposit Insurance of Vietnam.
Check and supervise the legality, accuracy, and correctness in management and
administration through the following activities: audit of financial statements, audit of
compliance and audit of operations of Deposit Insurance of Vietnam.

- Mission – Vision – Objectives – Values

MISSION: Protecting depositors, contributing to the stability of credit institutions,
and ensuring the safe and sound development of the banking system.
VISION: Pursuing the model of an effective deposit insurer, becoming a productive
policy instrument to contribute to the fulfillment of the common mandate of the
banking sector.
OBJECTIVES
+ Improving effectiveness of supervision and early warning
+ Enhancing financial capacity
+ Promoting public awareness on deposit insurance
+ Participating in banking restructuring process
 + Reimbursing correctly, sufficiently and timely to depositors
ORGANIZATION'S VALUES:
Solidarity, competence, devotion, responsibility, professionalism
- Tasks and Responsibilities
+ To build a deposit insurance development strategy
+ Proposing and proposing laws on the formulation, amendment, and
supplementation of undertakings and policies
+ Synthesize, analyze and process information to ensure the safety of the
banking system.
+ Payment and authorization to pay insurance premiums to the insured
+ Monitor and inspect the observance of the legal provisions on deposit
insurance.

II. Importance of Deposit Insurance in the financial system

1. Practical illustration:
a. In the world
- FDIC (Federal Deposit Insurance Corporation) toward the collapse of SVB
During the 2008 financial crisis, FDIC insurance played a crucial role in
stabilizing the financial system. As banks began to fail, depositors were reassured that
their money was safe and did not withdraw their funds en masse, which could have
caused a complete collapse of the banking system. FDIC provided a safety net for
depositors and helped to prevent a run on banks. It also helped to stabilize the economy
by reducing the risk of widespread bank failures and protecting the savings of millions of
Americans.
On March 10th, 2023, the SVB collapsed and was marked as the largest bank
failure since the 2008 financial crisis. As of December 31, 2022, Silicon Valley Bank
had approximately $209.0 billion in total assets and about $175.4 billion in total deposits.
At the time of closing, the number of deposits exceeding the insurance limits was
undetermined. The number of uninsured deposits will be determined once the FDIC
obtains additional information from the bank and customers.
SVB's collapse began at the end of March 8th when the bank suddenly
announced that it had sold $21 billion of its available bond portfolio and accepted a loss
of $1.8 billion. On the same day, SVB Financial announced it would raise $2.25 billion in
equity to help bolster its balance sheet. This set off a siren that the bank was financially
unstable and led to some influential venture capitalists telling the businesses they
invested in to start withdrawing their money from SVB, which only exacerbated the
situation. The wave of withdrawals made SVB unable to react and collapsed in just 48
hours.
 One of the most immediate effects of the collapse of SVB is the disruption of the
financial services that the bank provides to its clients. Many of the world's leading
technology companies like Roku, Roblox and Circle relied on SVB for essential financial
services such as lending, cash management, and investment banking. With the failure of
the bank, it is much more challenging for these companies to secure the financing they
need to continue to innovate and grow.
In addition to the impact on the technology industry, the collapse of SVB has
broader implications for the global economy. As a major player in the banking industry,
SVB has relationships with many banks and financial institutions around the world, also
with many companies and governments, particularly in the technology sector. The failure
of this bank has led to a loss of confidence in the United States' ability to maintain its
position as a leader in technology and finance.

On March 10th, 2023, the FDIC took control of SVB’s deposits. After the
collapse of Silicon Valley Bank, the FDIC transferred all deposits, both insured and
uninsured, and substantially all assets of the former Silicon Valley Bank of Santa Clara,
California, to a newly created, full-service FDIC-operated ‘bridge bank’ in an action
designed to protect all depositors of Silicon Valley Bank.

Depositors have had full access to their money since Silicon Valley Bridge Bank
opened on March 15th and resumed normal banking hours and activities, including online
banking. Depositors and borrowers automatically became customers of Silicon Valley
Bridge Bank, N.A., and had customer service and access to their funds by ATM, debit
cards, and writing checks in the same manner as before. No losses associated with the
resolution of Silicon Valley Bank were borne by taxpayers. Any losses to the Deposit
Insurance Fund to support uninsured depositors were recovered by a special assessment
on banks, as required by law. These actions preserved the value of the assets and
operations of Silicon Valley Bank, which may improve recoveries for creditors and the
deposit insurance fund (DIF).

A few weeks later, on March 27, the First Citizens Bank took on $119 billion in
SVB’s deposits and about $72 billion of SVB’s loans at a 23% discount of $16.5 billion
while about $90 billion of securities and other assets of SVB were still under the control
of FDIC. Financial experts believe that this action will help stabilize the financial system
and reassure investors' confidence.

- IADI ( International Association of Deposit Insurers) after Covid - 19:

The International Association of Deposit Insurers (IADI) has been working
diligently to preserve financial stability in the wake of the COVID-19 pandemic. This
organization is dedicated to enhancing the effectiveness of DI systems worldwide and
promoting international cooperation in this area. IADI has been working closely with its
members (DIA, CDIC, FDIC,..) to ensure that deposit insurance schemes remain strong
and are capable of providing adequate protection to depositors.

One of the key actions taken by the IADI in response to COVID-19 has been the
development of guidance and recommendations for deposit insurers to manage the risks
associated with the pandemic. This has included guidance on topics such as assessing the
impact of COVID-19 on insured institutions, monitoring risks to deposit insurance funds;
specifically IADI’s 2022 report on Global Trends and Key Emerging Issues, and
providing support to insured institutions as needed. Additionally, the IADI has been
advocating for the implementation of measures that would prevent the failure of financial
institutions, which would ultimately protect depositors.

In addition to guiding deposit insurers, the IADI has collaborated with other
international organizations to coordinate the global response to COVID-19. For example,
a webinar themed “Preparing Our Path to the New Normal” was held on 9 June 2020
among more than 160 senior officials and staff from 13 deposit insurers across the Asia
Pacific region. Speakers from IADI, the World Bank, Bank for International Settlements
(BIS) and deposit insurers from Asia Pacific discussed current developments and new
perspectives on the financial sector and implications on including deposit insurers going
forward. In summary, the webinar examined the international policy responses by deposit
insurers to the pandemic crisis and priority areas going forward such as crisis
management, public awareness, and depositor reimbursements. Emerging trends were
also explored, including the new retail banking landscape and attendant policy options for
deposit insurance. As countries approach the phase of crisis recovery, deposit insurers
have continued to strengthen operational readiness in technology and crisis
communications, as well as through ongoing reviews of policy measures.

As soon as recognized the COVID-19 pandemic as a global issue that requires a

coordinated and collaborative response, IADI has been encouraging its members to share
information and best practices to better understand the impact of the pandemic.

b. In Vietnam
Deposit Insurance of Vietnam (DIV), a non-profit financial institution
established by the government. The role of the DIV is increasingly evident in the
following points:

- Enhancing depositor confidence:

In terms of reinforcing depositors' confidence, the DIV only accepts reimbursement of
deposits in dong at insured institutions. This is also one of the factors contributing to anti-
dollarization, improving people's confidence in the national currency. This solution will
also contribute to minimizing exchange rate risk due to asymmetry in currencies between
assets and sources for the banking system in Vietnam.

To date, the DIV is protecting depositors' deposits at 1,283 insured institutions, including
97 banks and foreign bank branches, 1,181 People's Credit Funds, one cooperative bank,
and four microfinance institutions. These institutions are all granted with certificates of
deposit insurance participation and are charged and collected premiums in accordance
with the provisions of the law. The DIV periodically conducts monthly, quarterly and
annual supervision for 100% of insured institutions.

- Ensures social security in the field of finance and banking:

The DIV has always taken positive action, coordinated with the SBV and insured
institutions to promptly overcome problems, thereby ensuring the stability of the banking
and financial system.

During more than 20 years of operation, the DIV has reimbursed depositors at 39 People's
Credit Funds in 11 provinces and cities for 1,793 insured people with 26.78 billion dongs.
The DIV directly made payments for 34 People's Credit Funds, authorizing credit
institutions to make payments on the behalf of 5 People's Credit Funds. In general, the
reimbursement of deposit insurance, both by direct and authorized methods, is made
accurately and promptly, protecting the legitimate interests of depositors, contributing to
stabilize security, order, and social safety in localities.

- Helps the people's credit fund (PCF) system develop safely and healthily
The protective effect of the deposit insurer is not only reflected in direct payments to
depositors, but also early warning activities, such as assisting PCFs in monitoring
deposits, regularly supervises and periodically examines 100% of the PCFs. In which, the
supervision profession focuses on analyzing and evaluating the current status of operation
of the PCFs; the compliance with regulations on deposit insurance as well as compliance
with regulations on safety of banking operations; thereby warning the risks, mistakes and
weaknesses that the PCF needs to overcome and report and propose to the SBV for timely
handling. In addition, deposit insurance also participates in the process of restructuring,
handling weak PCFs and special control. In the past, DIV has sent staff to join the Special
Control Board at PCFs to coordinate and comment on plans for commercial banks to
participate in resolving PCFs as well as to support depositors' payments at such PCFs.

- By implementing deposit insurance, Vietnam can comply with international

standards
Providing a safety net for depositors in case their financial institution fails. This helps to
increase confidence in the banking system and ensure financial stability. The DIV works
closely with international organizations such as the International Association of Deposit
 Insurers (IADI) to share best practices and learn from other countries' experiences. By
following international standards and best practices, the DIV is able to maintain a high
level of credibility and trust, which is crucial for attracting foreign investment and
maintaining a stable financial system. It is essential for Vietnam's compliance with
international standards and its ability to attract foreign investment.

2. Conclusion of the Roles of deposit insurance in the financial system:

In conclusion, DI plays a crucial role in the financial system by promoting financial
stability, protecting depositors from loss, and encouraging public confidence in the
banking system. Deposit insurance schemes are designed to ensure that depositors have
access to their funds even in the event of a bank's failure, thus mitigating the risk of bank
runs and contributing to the overall stability of the financial system. Additionally, deposit
insurance can protect small depositors who may not have the resources to recover from a
bank failure.

C. REGULATIONS OF DEPOSIT INSURANCE IN VIETNAM

I. Regulations of DIV:
1. Insured deposit
a. Insured deposits:
● Definitions:
According to Law No: 06/2012/QH13 about Law on Deposit Insurance - Article 18:
Deposit insured is the deposit in Vietnam Dong of individuals deposited at the deposit
insurance participating organization in the form of term deposit, non-term deposit, saving
deposit, certificates of deposit, promissory notes, bills and other forms of deposit under
the provisions of the Law on credit organizations, other than the deposits regulated in
Article 19 of this Law.

● Rights & Obligations of the insured persons of deposit:

According to Law No: 06/2012/QH13 about Law on Deposit Insurance - Article 11:
1. Being insured their deposits at deposit insurance participating organizations under the
provisions of this Law.
2. Receiving the premium fully and in a timely manner as prescribed by this Law.
3. Requiring the deposit insurance participate organizations and deposit insurance
organizations to provide complete and accurate information and regulations on deposit
insurance.
4. Making complaint and denunciation and initiating a suit against the agencies,
organizations and individuals related to deposit insurance as prescribed by the law.
5. Having the obligations to provide complete and honest information on the deposit on
the requirement of Deposit insurance participating organizations and Deposit insurance of
Vietnam upon performing the procedures for the premium payment.
=> Summary: For insured persons of deposit, they are required to have their deposits at
deposit insurance participating organizations under the provisions of this Law; to provide
complete and honest information on the deposit on the requirement of Deposit insurance
participating organizations and DIV upon performing the procedures for the premium
payment. In return, they get to receive the premium fully and in timely manner; get to be
provided complete and accurate information and regulations on deposit insurance. They
can make complaint, denunciate or initiate a suit against entities related to deposit
insurance.

● Rights & Obligations of the Deposit insurance participating organizations:

According to Law No: 06/2012/QH13 about Law on Deposit Insurance - Article 12:
1. Submitting record to request the issuance of the Certificate of deposit insurance
participation.
2. Being issued the Certificate of deposit insurance participation.
3. Paying deposit insurance fee adequately and in a timely manner
4. Requiring Deposit Insurance of Vietnam to pay the premium to the insured persons of
deposit at the deposit insurance participating organizations upon the obligations of
premium payment arising.
5. Making complaint and denunciation and initiating a suit against the agencies,
organizations and individuals related to deposit insurance as prescribed by the law.
6. Providing information on the insured deposit to Deposit Insurance of Vietnam
periodically or at the request of Deposit Insurance of Vietnam

=> Summary: For the rights and obligations of the Deposit insurance participating
organizations, they are required to provide information on the insured deposit to DIV
periodically or at the request of DIV and to pay deposit insurance fee adequately and in a
timely manner. In return, they get to have the certificate of deposit insurance
participation; to require DIV to pay the premium to the insured persons of deposit upon
the obligations of premium payment arising and to make complaint, to denunciate or to
initiate a suit against the entities related to deposit insurance.

● Rights & Obligations of Deposit Insurance of Vietnam (DIV):

According to Law No: 06/2012/QH13 about Law on Deposit Insurance - Article 13:
1. Building the development strategy of the deposit insurance for the State Bank of
Vietnam to present the Prime Minister for the approval and organization of
implementation.
2. Making proposal to the competent state management agencies to promulgate or amend,
supplement, supersede, annul and suspend the execution of the legal normative
documents related to the deposit insurance activities.
3. Being examined and inspected and supervised by the State Bank of Vietnam and the
competent state agencies as prescribed by the law.
4. Issuing and revoking the Certificate of deposit insurance participation
5. Requiring the deposit insurance participating organizations to provide information on
the insured deposit.
6. Calculating and collecting deposit insurance fees for the deposit insurance participating
organizations as prescribed by this law.
7. Managing, using and preserving the capital resources of deposit insurance
8. Making payment of premium to the insured persons of deposit as prescribed by this
law.
9. Monitoring and inspecting the compliance with the legal provisions on deposit
insurance; making proposal to the State Bank of Vietnam to handle the acts of violation
of provisions of the law on deposit insurance.
10. Aggregating, analyzing and processing information on the deposit insurance
participating organizations in order to detect and propose the State Bank of Vietnam to
promptly handle violations of safety regulations on banking operations and risks that
cause the unsafety in the banking system.
11. Ensuring the confidentiality of the data of deposit related to the deposit insurance of
the deposit insurance participating organizations as prescribed by law.
12. Receiving the support on the principle of reimbursement from the state budget as
decided by the Prime Minister or borrowing from the other credit organizations and other
organizations with the guarantee of the Government in case the capital resources of the
deposit insurance organizations temporarily are not sufficient to pay the premium;
receiving funding from foreign and domestic organizations and individuals to strengthen
the operational capacity.
13. Participating in a special control process for the deposit insurance participating
organizations as prescribed by the State Bank of Vietnam; participating in the
management and liquidation of assets of the deposit insurance participating organizations
as prescribed by the Government.
14. Organizing to propagate the policies and laws on deposit insurance; organizing
training and fostering the profession of deposit insurance, researching and applying the
science and technology and management methods in accordance with the requirements of
development of the deposit insurance organizations.

=> Summary: In terms of DIV, they are required to build the development strategy of the
deposit insurance for the State Bank of Vietnam; to calculate and collect deposit
insurance fees for the deposit insurance participating organizations and manage, use and
preserve this capital. Besides, they are in charge of requiring the deposit insurance
 participating organizations to provide information on the insured deposit and in charge of
paying premium to the insured persons of deposit. In addition, DIV are examined,
inspected and supervised by the State Bank of Vietnam and the competent state agencies
and they must participate in special control process for the deposit insurance participating
organizations, etc. In terms of rights, they get to receive the support from the state budget
or borrowing from other credit organizations in case the capital réour

b. Uninsured deposits
● Definitions:
According to Law No: 06/2012/QH13 about Law on Deposit Insurance - Article 19:
1. Money deposited at the credit organization of the individual who owns more than 5% of
the charter capital of that credit organization.

2. Money deposited at the credit organization of the individual who is a member of the
member Board, member of Board of Directors, member of control Board, General
Director (Director), Deputy General Director (Deputy Director) of that credit; Money
deposited at the foreign banking branch of the individual who is the General Director
(Director), Deputy General Director (Deputy Director) of that foreign banking branch.

3. Money used to buy bearer security by the deposit insurance participating organization.

2. Deposit insurance premium:

a. Deposit insurance premium
● Definition (Point 1.1 Clause 1 Section 1 of Official Dispatch No. 397/CV-BHTG8 dated
August 11, 2006, On guidelines for determination and payment of premiums.)
Premium means an amount of money that an insured institution obligated to pay for
Deposit insurance of Vietnam to provide deposit insurance for depositors.
● Premium rates (Point 1.2 Clause 1 Section 1 of Official Dispatch No. 397/CV-BHTG8
dated August 11, 2006, On guidelines for determination and payment of premiums.)
Each insured institution shall pay premium rate at 0.15% per annum out of the average
deposit balance of deposits insured at such insured institution
● Deadline for the payment of deposit insurance premium (Article 6 Chapter 2 of
Circular No. 24/2014/TT-NHNN dated September 06, 2014 of the State Bank of Vietnam
guiding some contents in deposit insurance)
Deposit insurance premium is calculated and paid every quarter of a fiscal year. On 20th
day of the first month of a payment quarter at the latest, the insured institutions must pay
deposit insurance premium to the Deposit Insurance of Vietnam. If the final date on
which due payment of insurance premium must be made is a holiday or day off, the
insured institutions must fulfill their payment obligations at a consecutive date.
 ● Calculation of deposit insurance premium (Clause 1, 5, 2 Article 7 Chapter 2 of
Circular No. 24/2014/TT-NHNN dated September 06, 2014 of the State Bank of Vietnam
guiding some contents in deposit insurance)
- Calculation of deposit insurance premium during a payment quarter is based on all
average balances of an insured deposit made at an insured institution in the preceding
quarter ahead of the quarter of insurance premium payment.
- Amount of balances of insured deposits, deposit insurance premium and surcharges on
deficient or late payments shall be rounded to the nearest thousand in VND unit following
the principle:
a) Greater than or equal to (≥) VND 500 shall be rounded to VND 1,000.
b) Less than (<) VND 500 shall be rounded to VND 0.
- Amount of deposit insurance premium payables in a payment quarter is calculated in the
following formula:

Where:
+ P: amount of deposit insurance premium payables in the quarter of insurance premium
payment.
+ S0: amount of balances of insured deposits in the beginning of first month of preceding
quarter ahead of the quarter of insurance premium payment.
+ S1, S2, S3: amount of balances of insured deposits at the end of first, second and third
month of the preceding month ahead of the quarter of insurance premium payment.
+ m: amount of deposit insurance premium payables.
- Example: People's Credit Fund A has the following balances of insured deposits in the
first 3 months of 2022: (Unit: VND 1,000)
+ Balance at the beginning of the first month: 1,210,000
+ Balance at the end of the first month: 1,180,000
+ Balance at the end of the 2nd month: 1,200,000
+ Balance at the end of the 3rd month: 1,100,000
How much is the deposit insurance premium paid quarterly (Q2/2022)? Given that the premium
rate is 0.15% per annum.

S0 = 1,210,000, S1 = 1,180,000, S2 = 1,200,000, S3 = 1,100,000, m = 0.15%

=> The amount of deposit insurance premium paid quarterly (Q2/2022) is: VND 442,000.

b. Premiums of inadequate and late payment

● Underpaid premiums (Point 1.2 Clause 1 Section 3 of Official Dispatch No. 397/CV-
BHTG8 dated August 11, 2006, On guidelines for determination and payment of
premiums.)
When Deposit insurance of Vietnam (its head office or branch) detects any underpaid
premium made by any insured institution, it shall immediately send notification of the
underpaid premiums to the insured institution and request the insured institution to pay
the outstanding premium within 15 working days from the date on which the Deposit
insurance of Vietnam detects the violation.
Apart from payment of the outstanding premium, the insured institution shall be liable for
fine at 0.1% per diem out of the outstanding premium from the deadline for payment of
premium as prescribed.
● Late payment of premiums (Clause 2 Section 3 of Official Dispatch No. 397/CV-
BHTG8 dated August 11, 2006, On guidelines for determination and payment of
premiums.)
- Paying premium after 20th of the first month of the collecting quarter
If an insured institution violates deadline for premium payment (paying premium after
20th of the first month of the collecting quarter), it shall be liable for fine at 0.1% (one
thousandth) per diem out of the premium, then Deposit insurance of Vietnam shall send
notification of number of dates for late payment, premium amount of late payment and
fine amount for late payment, and request the insured institution to pay the above amount
within 15 days from the date on which the notification is received
- Not paying the full premium and the fine after 30 days from the deadline for premium
payment
If the insured institution has not paid the full premium and the fine after 30 days from the
deadline for premium payment. Deposit insurance of Vietnam is entitled to request the
State bank (applicable to credit institutions) or State Treasury or credit institutions
(applicable to other organizations conducting a number of banking activities) where the
insured institution opens its account to withdraw the insured institution’s account to pay
the outstanding premium and fine; if the account’s balance is lower than the required
amount, Deposit Insurance of Vietnam shall send a report to the State bank of Vietnam.
- Not paying the outstanding premium within 03 months after the deadline for premium
payment as mentioned in the notification
If the insured institution has not paid the outstanding premium within 03 months after the
deadline for premium payment as mentioned in the notification, Deposit Insurance of
Vietnam shall issue a decision to revoke the deposit insurance certificate and terminate
the deposit insurance status and publicize the decision in the mass-media to protect
 depositors. And it shall request the State Bank to issue a decision to stop the mobilization
of deposits from individuals by such insured institutions.

3. Deposit insurance payment

Deposit insurance payment is the amount of money that is paid out to depositors.
Pursuant to Law No.06/2012/QH13 on Deposit Insurance.

a. Arising time of obligations of deposit insurance payment

The arising time of obligations of deposit insurance payment refers to the point in time
when the obligation to pay deposit insurance arises. This is typically specified in the
insurance policy or contract.

In Vietnam, the obligations of deposit insurance payment arising from the time the State
Bank of Vietnam sends the document to terminate the special control or document to
terminate the application or documents not to apply the measures to restore the solvency
for the credit organization that is a deposit insurance participating organization still falls
into bankruptcy or the State Bank of Vietnam has the document to identify the foreign
banking branch that is deposit insurance participating organization losing the ability to
make payment of deposits to the depositors

b. Term for deposit insurance payment

The term for deposit insurance payment is typically made on a regular basis, such as
monthly, quarterly, or annually, depending on the terms of the insurance policy.

Pursuant to the Law of Deposit Insurance in Vietnam, within 60 days from the arising
time of the obligation to pay the deposit insurance payment, the deposit insurance
organization is responsible for paying the deposit insurance payment to the insured
depositors

c. Limit of deposit insurance payment

● At the request of the State Bank of Vietnam, The Prime Minister stipulates the limit of
deposit insurance payment.
● The limit of deposit insurance payment is the maximal amount that the deposit insurance
the organization shall make payment for all insured deposits of a person at a deposit
insurance participating organization upon the arising obligations of deposit insurance
payment.
 According to Decision 32/2021/QD-TTg on insurance money limit, the limit on payment
of Deposit insurance payments in Vietnam is regulated as follows:
- The deposit guarantee limit for one customer is 125 million VND at a bank.
- If a customer has multiple accounts at the same bank, the deposit insurance amount
for this customer will be aggregated from those accounts and the maximum deposit
insurance limit is 125 million VND.

d. Paid deposit insurance payment

● The amount paid to all insured deposits of a person at deposit insurance participating
organization including the principal and interest maximally equal to the limit of deposit
insurance payment prescribed in Article 24 of Law No.06/2012/QH13 on Deposit
Insurance which is Limit of Deposit Insurance Payment.
● The amount paid in case many people jointly own the insured deposits are defined as
follows:
- The amount paid to all insured deposits of many people jointly owning at a deposit
insurance participating organization the principal and interest maximally equal to the
limit of deposit insurance payment paid to one person prescribed in Article 24 ( Limit
of Deposit insurance Payment ) . The amount paid will be divided by the agreement
of the co-owners; in case there is no agreement or no agreement reached between the
co-owners, the settlement shall apply the provisions in accordance with the law;
- Where one of the co-owners has other insured deposit accounts at the same deposit
insurance participating organization, the total amount paid to a co-owner shall not
exceed the limit of deposit insurance payment;
● Where the insured person has a debt at the deposit insurance participating organization,
the insured deposit is the remaining amount after deducting that debt.
e. Treating the deposit exceeding the limit of deposit insurance payment
The deposit of the insured person of deposits including the principal and interest
exceeding the limit of deposit insurance payment shall be settled in the process of assets
treating of the deposit insurance participating organization as prescribed by the law.

If the deposit amount exceeds the deposit insurance payment limit, the credit institution
will have to pay additional money to ensure that the deposit insurance payment is paid in
full. The handling of deposits in excess of the deposit insurance payment limit will
comply with the regulations on the handling of collateral assets of the State Bank of
Vietnam.

In case a credit institution fails to satisfy the deposit insurance payment requirements, the
State Bank may consider applying coercive measures to ensure the interests of deposit
customers.
II. Comparison between DIV’s regulations and other deposit insurance
organizations over the world

1. Insured deposits
 Table 2. Comparison on insured deposits between DIV and FDIC
DIV FDIC

Insured This includes all types of deposits in This includes Checking and Savings Accounts,
deposits Vietnam Dong of individuals, including Money market deposit accounts (MMDAs) and
savings, current, and time deposits. Certificates of deposit (CDs).

Uninsured DIV doesn’t cover money used to buy bearer Certain types of accounts, such as Mutual
deposits securities, deposits that are not in Vietnam funds, Annuities, and Stock/ Bond investments,
Dong and deposits that are not from are not covered by FDIC insurance.
individuals.

Rights & The DIV’s function of supervising the According to A Rule by the Federal Deposit
Obligations of deposit insurance participating institutions is Insurance Corporation on Role of Supervisory
the deposit still limited: (According to Law No: Guidance - Part 302 - Clause 302.1: Purpose
Insurance 06/2012/QH13 about Law on Deposit The FDIC issues regulations and guidance
organizations Insurance - Article 13) as part of its supervisory function.

- Clause 3: Monitoring and inspecting
the compliance with the legal
provisions on deposit insurance;
making proposal to the State Bank of
Vietnam to handle the acts of
violation of provisions of the law
- Clause 2: Making proposal to the
competent state management
agencies to promulgate or amend,
supplement, supersede, annul and
suspend the execution of the legal
normative documents related to the
deposit insurance activities.
-> For all other issues, DIV must also
consult and report to the SBV. These
regulations show that the DIV does not have
enough power like the FDIC in the field of
banking supervision, which is mainly due to
-> DIV only gets to make proposal to the
competent state management agencies
about the regulations but FDIC gets to
issues regulations and guidance on its own.
The Federal Deposit Insurance Corporation
(FDIC) is an independent agency created by
Congress to maintain stability and public
confidence in the nation's financial system.
Besides, in terms of management, according to
FDIC’s website: The FDIC is managed by a
five-person Board of Directors that includes the
Comptroller of the Currency and the Director of
the Consumer Financial Protection Bureau, all
of whom are appointed by the President and
confirmed by the Senate, with no more than
three being from the same political party.
-> So as you can see, FDIC is only supervised
by a five-person Board of Directors.
 the legal status of the Deposit Insurance of
Vietnam unlike the FDIC.

=> Overall, the major difference between the two regulations is the amount of deposit insurance
provided and its power of supervision and issuing regulations. The FDIC offers more
comprehensive coverage, while the DIV provides. Therefore, overall the protection of FDIC
toward depositors is more effective in compared with DIV

2. Deposit insurance premiums

Table 3. Comparison on premium rates between DIV and FDIC

DIV FDIC

Premium Each insured institution shall pay a
rates premium rate at 0.15% per annum out of
the average deposit balance of deposits
insured at such insured institution. This
premium has been applied since the
establishment of Deposit Insurance of
Vietnam until now.
Premium rates are calculated based on the risk
level of deposit insurance participating
institutions. The annual premium for these
institutions ranges from 0.001% to 0.27% of the
total insured deposit balance at each bank. This
regulation is applied since 1993 under the FDIC
Improvement Act.

Reason
● US: The US has a well-developed deposit insurance system.
The FDIC is the agency that issues regulations on assessing the risks of depository
institutions as well as calculating deposit insurance premiums and making insurance
payments.

● VN: The State Bank is the agency that assesses and classifies the risks of deposit-taking
institutions, while the DIV is the agency responsible for calculating premiums and paying
insurance premiums.

DIV is not allowed to decide this premium on its own based on the risk assessment and
rating of the deposit insurance participating institution. The adjustment of the premium
must be decided by the Prime Minister based on the proposal of the DIV and must be
consulted by the State Bank of Vietnam and the Ministry of Finance.
 In addition, information about bank ratings as well as deposit insurance premiums of each
bank is very sensitive information and affects people's confidence in the bank.

Besides, the difference in deposit insurance premiums also shows the lack of rigor in
Vietnam's legal framework. According to Clause 2 Article 2 of Law No. 06/2012/QH13
dated June 18, 2012, on Deposit Insurance, “Based on the premium framework of the
deposit insurance, the State Bank of Vietnam shall regulate the specific premium rate of
the deposit insurance for the deposit insurance participating organizations on the basis of
assessment and classification of these organizations”, but based on Clause 3 Article 21 of
Decree No. 68/2013/ND-CP dated June 28, 2013, guiding implementation of the Law on
deposit insurance and Article 7 Chapter 2 of Circular No. 24/2014/TT-NHNN dated
September 06, 2014, of the State Bank of Vietnam guiding some contents in deposit
insurance, in fact, the method of calculating deposit insurance premiums is still on the
principle of equalization.

=> Vietnam's regulations on the use of one deposit insurance premium rate are consistent
with international best practices and the actual situation of Vietnam.
However, the failure to charge premiums based on the risk level of deposit insurance
participating organizations would not reflect the performance of each organization and
could lead to moral hazard.

3. Insurance payment
Table 4. Comparison on term of deposit insurance payment between DIV and FDIC

DIV FDIC

Term of According to regulations of the Pursuant to Part IV of the Federal Deposit

deposit State Bank of Vietnam, within 60
insurance days from the arising time of the
payment obligation to pay the premium, the
deposit insurance organization is
responsible for paying the deposit
insurance payment to the insured
depositors.
Insurance Act and related regulations of the
Federal Reserve and the Financial Services
Administration, the FDIC must pay deposit
insurance to insured depositors within 3 working
days from the date of deposit insurance bankruptcy
or the date the State Bank of the United States
accepts the depositor’s claim for insurance.

→ This shows the US government’s concern for the interests of insured depositors and its
promptness in ensuring they get their deposits back when a bank goes bankrupt.
 Table 5. Comparison on limit of compensation payment between DIV and FDIC

DIV FDIC

Limit of With DIV's deposit insurance According to FDIC.gov: “Deposits are insured up to at
compensation limit of VND 125 least $250,000 per depositor, per FDIC-insured bank, per
payment million/person/transaction, ownership category. Deposit insurance is calculated dollar-
DIV's deposit insurance for-dollar, principal plus any interest accrued or due to the
coverage focuses on customers depositor, through the date of default.”, the FDIC deposit
depositing at financial insurance coverage covers all depositors at banks in the
institutions. United States.

The difference in deposit insurance coverage between the DIV and the FDIC represents
the difference in deposit insurance coverage and levels of protection offered by
depositors.

According to the table, the FDIC offers a higher level of protection to US depositors than
the Vietnam DIV.

However, these are two deposit insurance institutions operating in two different
economies, with huge disparities in their history, financial stability, economic size, and
creditworthiness of the institution. So, the difference is inevitable and understandable.

D. REFORMS FOR DEPOSIT INSURANCE IN VIETNAM

1. Learning from the acts of FDIC in deposit guarantee and protection
a. Successes and Failures of FDIC (Mai)
● SUCCESS:
1. Build a robust deposit insurance system: The FDIC has built a strong reputation over its
history as a trusted and reliable authority through a strong deposit insurance system that
has been successful in protecting the deposits of millions of Americans.

During the recent financial crisis of 2008-2009, many banks were failing or on the verge
of failure, and there was widespread concern about the safety of bank deposits. However,
the FDIC was able to step in and provide insurance to depositors, which helped to prevent
a run on the banks and a further collapse of the financial system.

In fact, during the financial crisis, the FDIC insured deposits up to $250,000 per account,
which helped to ensure that millions of Americans did not lose their savings.
As of 2021, the FDIC insures deposits at over 5,000 banks and savings associations.
2. Encourage public confidence and access to bank services: The FDIC has helped to
maintain public confidence by providing a safety net for depositors, even during times of
financial stress.
● By providing deposit insurance, the FDIC has made it safer and more attractive
for banks to offer services to a broader range of customers
● The FDIC maintains an adequate reserve fund to ensure that it can meet its
obligations to insured depositors in the event of bank failures. Deposit Insurance
Fund (DIF) had a balance of $117.9 billion. The DIF is the fund that the FDIC
uses to insure deposits at banks and savings associations throughout the United
States.
The balance of the DIF can fluctuate over time, depending on a variety of factors,
including the number of bank failures and the amount of insured deposits at those banks.
However, the FDIC is required by law to maintain a minimum reserve ratio of 1.35% of
insured deposits in the DIF. As of the end of 2020, the reserve ratio was 1.28%, which
was still above the minimum required by law.
● Swift response to bank failures: The FDIC has been effective in responding
quickly to bank failures to protect depositors' funds.
When a bank fails, the FDIC typically steps in within a few days to secure the bank's
assets, notify depositors, and pay out insured deposits or may choose to sell the failed
bank to another institution to liquidate the bank's assets and use the proceeds to pay off
depositors.
3. Collaborate with other regulators: The FDIC has been successful in building effective
partnerships with other regulatory agencies.
● The FDIC works closely with the Office of the Comptroller of the Currency (OCC),
which is responsible for regulating national banks. The FDIC and the OCC have a shared
responsibility for supervising many of the same banks, and they coordinate their efforts to
ensure that these banks are following safe and sound banking practices.
● The FDIC also works closely with the Federal Reserve, which is responsible for
regulating and supervising bank holding companies and other large financial institutions.
The FDIC and the Federal Reserve collaborate to oversee the largest and most complex
banks in the U.S.
● The FDIC participates in the Financial Stability Oversight Council (FSOC), which was
created by the Dodd-Frank Act to monitor and respond to threats to the U.S. financial
system. The FSOC is comprised of representatives from many regulatory agencies, and
the FDIC collaborates with these agencies to identify and address systemic risks to the
financial system.
● The FDIC also collaborates with state banking regulators, who are responsible for
regulating state-chartered banks. The FDIC and state regulators coordinate their efforts to
ensure that state-chartered banks are following safe and sound banking practices and
complying with applicable regulations.
● FAILURE:
1. Systemic risk: The FDIC's deposit insurance system was not designed to address
systemic risks that can arise when multiple banks or institutions fail at the same time. In
the event of a systemic crisis, the FDIC may not have sufficient resources to meet all of
its obligations to depositors.

The FDIC was established in 1933, in the midst of the Great Depression, in response to
widespread bank failures. However, during this time, the FDIC was unable to prevent
many banks from failing, and depositors suffered significant losses. In total, more than
9,000 banks failed during the Great Depression, leading to widespread financial hardship.

In the 1980s and 1990s, the US experienced a savings and loan crisis, in which many
savings and loan associations failed. The FDIC was responsible for insuring these
institutions, but it faced significant challenges due to insufficient funds in its insurance
fund. As a result, the FDIC had to borrow money from the US Treasury and impose
additional fees on banks to shore up its insurance fund.

2. Limited access: The FDIC's deposit insurance system is only available to banks that are
insured by the FDIC. But it is rare for a bank not to have FDIC insurance, but there are
exceptions. Bank of North Dakota, for example, is not FDIC-insured

The FDIC classifies deposit accounts into several ownership categories, including single
accounts, joint accounts, corporate accounts, and retirement accounts. Individual
depositors are insured up to $250,000 per each ownership category, per FDIC-insured
bank. If an account holder has more than $250,000 in accounts that fall under a single
ownership category at one bank, anything over that amount is not insured. This can create
a risk of loss for larger depositors and may lead them to withdraw their funds from banks
during times of financial stress, potentially exacerbating the problem.

3. Insufficient oversight: While the FDIC provides regulatory oversight of banks, it has
been criticized for not being sufficiently proactive in identifying and addressing potential
risks in the banking system. This can lead to excessive risk-taking by banks and a lack of
market discipline.

During the 2008 financial crisis, when the housing bubble burst and many borrowers
began to default on their mortgages, the value of these securities plummeted, causing
significant losses for investors and contributing to the collapse of several large banks.
The FDIC was forced to take over many of these failed banks and pay out billions of
dollars in insured deposits to depositors.
 b. Lessons for Vietnam
- Dealing with bank failure
During the crisis period of 2007-2010, FDIC was granted higher authority in
handling failed banks. FDIC's bank resolution activities are completely independent of
court decisions, and FDIC's receivership activities are tax-exempt and not subject to any
other agency oversight. Once a bank is assessed as unable to pay, FDIC can immediately
take over all operations, set aside shareholders, and ultimately sell or liquidate the bank.
This helps the FDIC to be proactive and flexible in responding to banks at risk of failing:
unhindered, the FDIC can make independent decisions without going through other
organizations. This makes processing faster.
- Cross-guarantee
According to the last update on October 30, 2009, FDIC applied Cross Guaranty
Provision with the purpose that making every insured depository institution owned by the
same company financially responsible for the failure or resolution costs of any affiliated
insured institution. The provision lessens the cost to the FDIC’s Deposit Insurance Fund.
It means when a member bank in a certain corporation goes bankrupt, the assets of other
member banks will be used by FDIC to pay for the losses of the bankrupt member bank,
even if they are doing well in business. This increases mutual supervision among member
banks and reduces ethical risks in the business of an individual bank.
- Formulate insurance premiums on the basis of risk
Instead of applying a fixed fee rate based on deposit balance, the FDIC relies on
two criteria (bank's asset risk and supervisory agency's bank rating) to classify banks into
risk levels, then applies insurance fees based on this classification result.
Table 6. Bank’s Asset Risk
Source: FDIC

Risk Category I. New small organizations in Supervisory Group A that have become
Good will only be assigned to Risk Category I.

Type ro II. New small organizations in Monitoring Group A Fully Ready and new small
organizations in Monitoring Group B Well-established or Fully Chemical Needed will
only be formatted in Risk Category II.
 Type of ro III. New small institutions in Custodian Groups A and B that are
undercapitalized and new small institutions in Custodian Group C that are well-
capitalized or fully capitalized will be classified as Risk Category III.

Risk category IV. New small institutions in Supervisory Group C Undercapitalized will
be assigned to Risk Category IV. Risk Category I contains the lowest-risk banks and Risk
Category IV contains the highest-risk banks. As shown in Table 6, type 1 risk is that
banks with good capital will pay lower fees than banks with risk levels 2, 3 and 4.

Table 7. Supervisory Agency’s Bank Rating

Source: FDIC

As shown in Table 7, assessment rates ranged from 9 basis points for the lowest-risk
group to 42 basis points for the highest-risk group. Based on the basic score will be rated
risk levels 1, 2, 3, and 4.

Risk-based fees will help reflect the operational capacity of each bank, encouraging
banks to operate more efficiently to enjoy lower fees, thereby reducing ethical risks.

2. Proposed reforms for DIV

a. Develop the deposit insurance policy, and legal framework

The development strategy for DIV has set out tasks, key solutions, and
implementation roadmap in three areas: improving the legal framework, improving
insurance policies, and insurance operations. In order to enhance the effectiveness of
insurance payouts and asset liquidation, the strategy has proposed the following tasks and
solutions:

- Research, propose amendments, and supplements the Deposit Insurance Law to ensure
the prevention of insurance fraud, enhance the coordination responsibility between
insurance companies and relevant agencies, and create a legal framework for insurance
 companies to participate in asset liquidation of participating organizations to maximize
the recovery value.
- Develop contingency plans and practice payouts for each type of participating
organization in insurance.
- Develop a payment handbook for each type of participating organization in insurance to
standardize payment processes, diversify payment methods, and apply information
technology to payment processes to shorten actual payment time.

b. Enhance the financial capacity of the deposit insurance institutions

- Increase the charter capital of DIV to VND 10,000 billion by 2025 and VND 15,000
billion by 2030 from self-accumulated sources and other legitimate capital sources to
ensure the financial capacity of insurance companies, affirm the commitment of the State
and enhance the trust of depositors in insurance policies, and ensure resources for
effective implementation of insurance operations.
- Enhance financial capacity by allowing DIV to diversify investment forms and
portfolios, including

(i) buying and selling government-guaranteed bonds

(ii) depositing money at commercial banks with good operational quality

(iii) buying and selling bonds, term bills, certificate of deposits issued by
commercial banks with good operational quality;

(iv) buying and selling local government bonds in accordance with the State
Budget Law, Public Debt Management Law, guiding documents, and high
credit rating.

- Supplement the form of a borrowing from the State Bank of Vietnam in case the capital
source of DIV is not enough to pay insurance.
- Develop a plan to access support funding sources in case the capital source of DIV is
temporarily not enough to pay insurance.

c. Strengthen communication activities on deposit insurance

- Disseminate information, facilitating public awareness of the concept of deposit
insurance, the main features of the deposit insurance system. The public needs to know
about how their legitimate rights and interests are protected by the deposit insurer, the
scope of insured deposits, insurance coverage limit, and basic information about the
 deposit insurer, thereby limiting excessive expectations that affect the deposit insurance
system and financial stability.
- Restore and strengthen confidence in the financial system, especially when the financial
system fails. If depositors have confidence in the safety of their deposits at credit
institutions participating in the deposit insurance system, the recovery process of the
economy in general and the financial system in particular will take place faster. Financial
stability has also improved.
- Provide material information to depositors when risks to deposit insurance participating
institutions occur. The deposit insurance organization, the banking inspection and
supervision agency should ensure the safety of the insured funds, and at the same time
guide and support depositors to carry out legal procedures and documents to receive
compensation quickly. Providing timely and accurate information demonstrates the
deposit insurance's ability to fully perform its functions, helping to maintain public
confidence.
- Build trust of the public on DIV: Communication activities help the DIV build a solid,
professional, effective, and reliable image in public, meeting the task of protecting
depositors and reimbursements in time when a failure occurs.

d. Focus on implementing the digital transformation

- Develop a digital platform for deposit insurance: This platform could allow depositors to
easily check their coverage and make claims in case of bank failures. It could also
provide real-time updates on the status of deposit insurance funds and help increase
transparency and accountability.
- Use data analytics and machine learning: Deposit insurance agencies could use data
analytics and machine learning to better assess risks and monitor the financial health of
insured institutions. This could help detect potential problems before they become too
large to manage.
- Implement blockchain technology: Blockchain technology could be used to create a
secure and transparent ledger of all transactions related to deposit insurance. This could
help increase efficiency and reduce the potential for fraud.

E. CONCLUSION
- To conclude, Deposit insurance has justified itself as an indispensable part of banking
industry not only in Vietnam but also all over the world.
- It is a type of insurance that protects depositors against loss in the event of a bank failure.
- Deposit insurance plays a crucial role in maintaining depositor confidence and preserving
financial stability. By protecting retail and other small depositors in a bank failure,
deposit insurance minimizes the risk of deposit runs and mitigates contagion risk. If
depositors trust the insurance, they are less likely to run on a bank and exacerbate
liquidity stress, it also prevents panic from spreading through a financial system, which
would undermine recovery or resolution measures.
- Insurance deposit organizations all around the world, from medium-sized firms to big
ones have worked out a range of acts to protect financial institutions, depositors and
preserve fiancial stabilities over ups and downs of the economy. There are some practical
illustration that can be referred here: FDIC (Federal Deposit Insurance Corporation)
toward the collapse of SVB; IADI ( International Association of Deposit Insurers) after
Covid - 19.
- Learning from failures and succeses of FDIC, Insurance deposit system in Vietnam needs
to consider some reforms to boost the effectiveness of the system, namely: (1) Develop
the deposit insurance policy, legal framework; (2) Enhance the financial capacity of the
deposit insurance institutions; (3) Strengthen communication activities on deposit
insurance; (4) Focus on implementing the digital transformation.