Deposit Insurance in Vietnam

Group 10 Presenter
Giap Thi Mai Van Xuan Mai Pham Duy Minh Le Anh Minh Nguyen Thuy Ngan Le Thi Kim Ngan Part I Part III.1 Part III.2 Part II

Outline
I. Introduction to Deposit Insurance
1.
2.

The beginning and the development of Deposit Insurance in the world Concepts, purposes and roles of Deposit Insurance

II. Real situation of Deposit Insurance in Vietnam
1. 2. Deposit Insurance of Vietnam (DIV) Achievements and limitations of DIV Case: FDIC’s role in 2008 financial crisis Solutions recommended for DIV

III. Solutions recommended for DIV
1. 2.

Concepts b. Typical characteristics c. typical characteristics and roles of Deposit Insurance a. .I. The beginning and the development of Deposit Insurance in the world Concepts. Introduction to Deposit Insurance 1. Roles 2.

in the U. FDIC was born as the first deposit insurance institution in the world. more than 90 countries in the world have officially used Deposit insurance to protect their depositors. The beginning and the development of Deposit Insurance in the world FINANCIAL CRISIS 1929 – 1933 in THE U. • Until today.S. 1.S • During the 1930s.I. .

while some are private entities with government banking or completely private entities. and may or may not be a part of a country’s central banks.I. from losses caused by a bank's inability to pay its debts when due. Concepts. Concepts • Deposit insurance is a measure implemented in many countries to protect bank depositors. . typical characteristics and roles of Deposit Insurance a. • Deposit insurance institutions are for the most part government run or established. in full or in part. 2.

Typical characteristics • Deposit insurance is a type of public service (which serve the public). that means deposit insurance is also a tool to regulate the public policy in some countries. 2. Concepts. • The activities of deposit insurance is not for profit.I. . typical characteristics and roles of Deposit Insurance b. Its main purpose is to ensure that the financial system could work effectively.

Main roles Protect the depositors Encourage depositors to deposit more. also strengthen the discipline in deposit activities Deposit Insurance Create a balance and healthy banking system Used as a tool to resolve credit risk. typical characteristics and roles of Deposit Insurance c. or even financial crisis . 2.I. Concepts.

typical characteristics and roles of Deposit Insurance c. Main roles • A tool to regulate public policy • Ensure the financial system can work effectively • Help the government to create a healthy environment for credit institution to develop • Help to create the feeling of secure . Concepts. 2. to build up the confident among depositors .I.

Real situation of Deposit Insurance in Vietnam 1. Establishment of DIV Highlights of Mechanism and Operation of DIV 2. Deposit Insurance of Vietnam (DIV) a. b. Achievements and limitations of DIV a.II. Achievements Limitations . b.

Establishment of Deposit Insurance of Vietnam (DIV) • A State-run financial institution • Set up under the Prime Minister's Decision No. Deposit Insurance of Vietnam (DIV) a. 191 Ba Trieu. Hanoi. 1999 • Came into operation on 7 Jul 2000 • Non – profit organization. operating under Government’s Decree (under Ordinance 89/CP. Amendment 109/CP) • Head office: Vincom City Tower.218/1999/QD-TTg dated Nov 9.II. 1. Vietnam .

1. 2005) . 109/2005/ND-CP. Deposit Insurance of Vietnam (DIV) b. August 24th.a per depositor) • Supervise.II.15% p. monitor and support the operation of insured institutions • Maximum coverage: adjusted from 30 million VND to 50 million VND (stipulated in Decree No. Highlights of mechanism and operation of DIV • Mechanism: compulsory for banking and nonbanking institutions which perform banking activities • Collect deposit insurance premiums from insured institutions (fixed at 0.

Achievements • • • Because of compulsory mechanism.II. Coordinate with SBV to rescue ACB and Phuong Nam Bank in 2006. Achievements and limitations of DIV a. 2007 • . DIV found some violations and implemented appropriate adjustments. 1053 organizations mandatorily participating in DIV Apply the method of payment with limits (50 million VND) so as to prevent moral hazard By supervising the insured members. 2.

Achievements and limitations of DIV b.15 – 1. Limitations • • DIV does only perform insurance for deposits in VND (domestic currency) Maximum coverage is (50 million VND) however quite low and not safe enough to attract depositors.5%).II.9 % of total deposits) compared with recommended figure (1. • . 2. Reserve fund of DIV is not abundant (0.

15% anually of balance of deposits in the participant of DIV) is applied for every organization in DIV → lose competitiveness between those organizations The communication of information between DIV and other supervising authorities is infrequent and sluggish → drawback for DIV to monitor the activities of its participants Lack of legal bases. Limitations • Fee (0. 2. Achievements and limitations of DIV b. legal documents → difficulties for DIV to perform its functions • • .II.

Solutions recommended for DIV 1. Solutions for Vietnam . Introduction to FDIC The impact of the crisis to the banking system and the financial institutions FDIC’s role in 2008 financial crisis 2. Case: FDIC’s role in 2008 financial crisis a. b.III. c.

1. Introduction to FDIC • Federal Deposit Insurance Corporation • United States government corporation • Guarantees the safety of deposits in member banks.000 per depositor per bank as of January 2012 . up to $250. Case: FDIC’s role in 2008 financial crisis a.III.

Case: FDIC’s role in 2008 financial crisis b. The impact of the crisis to the banking system and the financial institutions .III.1.

The impact of the crisis to the banking system and the financial institutions .III. Case: FDIC’s role in 2008 financial crisis b.1.

III. Role of FDIC  Solve efficiently collapsed banks  Increase the maximum coverage  Buy bad debts from financial institutions .1. Case: FDIC’s role in 2008 financial crisis c.

1. sold MFB to IMB Hold Co: $13.III. In 2009. Role of FDIC  Solve efficiently collapsed banks  2 ways to solve collapsed banks: • Make payment • Set up a bank to take over the collapsed bank  Base on principle of minimum cost Eg: Indy Mac – rank 7th on the savings and loan – collapsed • Make payment: $29. Case: FDIC’s role in 2008 financial crisis c.3bil • Set up Indy Mac Federal Bank with set-up fee: $9.9bil .1bil.

Case: FDIC’s role in 2008 financial crisis c.7% total investment • Financial leverage: 12/1 . Role of FDIC  Buy bad debts from financial institutions Legacy Loans Program – LLP – Encourage investors to take part in the program: • Guarantee 85.III.1.

Role of FDIC  Increase the maximum coverage  Maximum coverage increased from $100. Case: FDIC’s role in 2008 financial crisis c.000  Stabilize the system .000 to $250.III.1.

III.2. Solutions recommended for DIV  Raise more capital to increase DIV’s financial capability  Enhance the capability to handle bankruptcy  Reform DIV’s fee system  Increase DIV’s maximum coverage  Create more legal documents as legal bases .

2. Article 19: the ways DIV can raise funds DIV should be active in raising its capital . Solutions recommended for DIV  Raise more capital to increase DIV’s financial capability • • • Increase chartered capital of DIV Circular 109/2005/ND-CP.III.

2. Solutions recommended for DIV  Enhance the capability to handle bankruptcy • Make a public announcement when a bankruptcy occurs In handling bankruptcy of a bank. DIV should: Pay off all the insured deposits Transfer all or partial insured deposits and assets of that bank to a healthy institution Consolidate that bank with a large bank to gain financial support Perform any possible financial support to the bank which is on the edge of disruption to prevent bankruptcy • .III.

Solutions recommended for DIV  Reform DIV’s fee system Current fee: apply the same fee of 0.2.III.15% to all institutions  Unfair between a healthy bank and a bank with high credit risk  Should change to apply a different range of fees on deposit insurance subject to the degree of risk of each institution .

Solutions recommended for DIV  Increase DIV’s maximum coverage Current maximum coverage: 50 mil VND/depositor  No longer suitable with current economic situation  Calculating payment limit should base on the principle of protecting the majority of depositors and thus should increase with GDP: Formula: Maximum coverage = 5.III.5 x GDP .2.

III.2. Solutions recommended for DIV  Create more legal documents as legal bases • Vietnamese government is considering building a Code of Deposit insurance to gain more consistency and legality in settling disputes related to DI. .

Q&A Thanks for your listening!  Group 10 .

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