Singapore: Government Guarantee on Deposits

On October 16, 2008, in light of global financial uncertainty and other countries introducing deposit guarantees, Singapore announced the GGD (MOF and MAS 2008). Government officials said that they established the GGD with the goals of “avoid[ing] an erosion of banks’ deposit base and ensur[ing] a level international playing field for banks in Singapore” and that its financial system was sound and robust (MOF and MAS 2008; H. K. Lim 2008). Lim Hng Kiang, Singapore’s Minister for Trade and Industry and Deputy Chairman of the MAS, said that the GGD was necessary for four reasons: to ensure that Singapore was not disadvantaged compared to other jurisdictions, to increase confidence in Singapore’s financial system, to support Singapore’s economy generally, and to restore confidence in the international financial system (H. K. Lim 2008).

In light of Hong Kong’s unlimited deposit guarantee, which was announced on October 14, 2008, Singapore announced its own unlimited guarantee on October 16, 2008, in coordination with Malaysia (MOF and MAS 2008; Marks and Yao 2008; K. K. Lim 2011). In July 2009, Singapore, Hong Kong, and Malaysia then formed the Tripartite Working Group, which aimed to coordinate an exit strategy from the unlimited guarantees (IADI 2012b, 30-31; Tripartite Working Group 2009; FSB 2010, 6). This regional cooperation, it has been argued, helped ensure a smooth crisis response (IADI 2012b).

The GGD utilized SGD 150 billion of the government’s reserves (MOF and MAS 2008). Because the President of Singapore controlled the government’s reserves, the presidential approval was required to use the funds as part of the GGD (Government of Singapore 2021). The President of Singapore approved the appropriation of Singapore’s reserves to fund the GGD (MOF and MAS 2008; H. K. Lim 2008).

The President of Singapore sanctioned the use of government reserves to fund the GGD, pursuant to Singapore’s constitution (Government of Singapore 2021; H. K. Lim 2008). The GGD was administered by the MAS, which is Singapore’s central bank and financial regulatory body (H. K. Lim 2008). The MAS ensured the prudential regulation of insured institutions (MOF and MAS 2008).

The pre-crisis deposit guarantee scheme guaranteed SGD 20,000 and was administered by the SDIC (SDIC and MAS 2006).

A Board of Directors was responsible for running the MAS (MAS Act 1970, article 7). The President of Singapore appointed all the members of its Board of Directors, including the Chairman and Deputy Chairman (MAS Act 1970, articles 7-8). The President also appointed a Managing Director, who was responsible for day-to-day activities (MAS Act 1970, article 9). The Singapore’s Auditor-General could audit the MAS as well (MAS Act 1999, article 33).

The FSB applauded the MAS’s data collection, noting that this information and regular audits would help ensure both a “prompt payout process” and that “depositors have prompt access to their insured funds in the event of a failure” (FSB 2012).

On October 16, 2008, the government announced the GGD to “avoid an erosion of banks’ deposit base and ensure a level international playing field for banks in Singapore,” notably in light of Hong Kong’s unlimited guarantee of deposits (MOF and MAS 2008; Marks and Yao 2008). Singapore’s government continually noted that its financial system was sound and robust (MOF and MAS 2008; H. K. Lim 2008).

The FSB credited Singapore with having an effective public awareness program, which helped bolster depositor confidence (FSB 2012). It also praised Singapore for evaluating the efficacy of its public awareness campaign (FSB 2012).

Pre-crisis, the SDIC guaranteed eligible deposits with a guarantee of SGD 20,000 (SDIC and MAS 2006). The MAS, through the GGD, covered eligible accounts with an unlimited guarantee (MOF and MAS 2008). In 2010, scholars estimated that the SDIC covered USD 86.6 billion in deposits (Demirgüç-Kunt, Kane, and Laeven 2014). By covering all eligible deposits, the GGD covered USD 319.2 billion deposits in total, covering an additional USD 232.6 billion in deposits compared to the non-crisis guarantee (Demirgüç-Kunt, Kane, and Laeven 2014).

The GGD was backed by the reserves of the Singapore government (MOF and MAS 2008). The total amount of reserves that was available to back the GGD equaled SGD 150 billion (MOF and MAS 2008). Because it was funded through these reserves, no additional fees were levied on eligible institutions (MOF and MAS 2008).

The SDIC launched in 2005 and had a goal to build its deposit insurance fund to 0.3% of insured deposits by accumulating premiums paid by insured institutions and investment income. The SDIC had SGD 44.2 million in its Deposit Insurance Fund as of March 2009 (SDIC 2009).

Eligible institutions for the GGD included institutions licensed by the MAS, such as banks, finance companies, and merchant banks (MOF and MAS 2008). Foreign banks and finance companies with full licensing were also included; however, wholesale and offshore banks were not included (SDIC 2019). Other non-licensed deposit-taking institutions, which were not covered under the pre-crisis deposit insurance scheme, were also covered by the guarantee, including credit cooperatives registered with the Registry of Cooperative Societies (MOF and MAS 2008). These institutions were all automatically enrolled in the GGD (MOF and MAS 2008).

The guarantee was available to all nonbank depositors, including sole proprietorships, partnerships, companies, and unincorporated entities. The pre-crisis guarantee only insured the deposits of individuals and charities.

The GGD guaranteed all Singapore dollar and foreign currency deposits of individual and nonbank customers in eligible institutions (MOF and MAS 2008). While the GGD was operational, the MAS reported that deposits grew (MAS 2011).

Two Singaporean lawyers said in a blog that Singapore’s government did not explain what types of deposits the GGD covered (Cheong and Wenrong 2009). In contrast, they said, Hong Kong had made it clear that its blanket guarantee of depositors did not include so-called structured deposits, which are derivatives-based financial products that perform like deposits; deposits that are pledged, charged, or secured as collateral; or deposits that subject to a contractual right of set-off (Cheong and Wenrong 2009). Malaysia’s guarantee did cover principal-guaranteed structured deposits (PIDM 2009).

There were no additional fees associated with the GGD, since the guarantee was funded through government reserves (MOF and MAS 2008). Fees, however, were used to fund the pre-crisis deposit guarantee program (SDIC and MAS 2006). The MAS determined these fees, which were then charged against the depository institution’s deposit base (MAS Act 1999, article 22).

Prior to the full deposit guarantee, a court order could wind up an eligible institution, or the MAS could require the institution to suspend its payments (MAS Act 1999, article 30). The SDIC would then pay out depositors from the Deposit Insurance Fund (MAS Act 1999, article 31).

Several lawyers highlighted that authorities in Singapore did not publish the exact terms of the GGD, including its payout process (Cheong and Wenrong 2009). Without such terms, they maintained that, should a payout need to be made, there could be a negative impact on depositor confidence, administrative challenges, and arbitrary payouts (Cheong and Wenrong 2009). The MAS, though, maintained that any payouts would be made using the government’s reserve fund, which totaled to SGD 150 billion (MAS 2009; MOF and MAS 2008).

The GGD had no additional conditions (MOF and MAS 2008).

When the GGD was introduced on October 16, 2008, the government announced that the GGD would end on December 31, 2010 (MOF and MAS 2008). The program ended as scheduled (MOF and MAS 2008; Demirgüç-Kunt, Kane, and Laeven 2014).

To ensure a smooth transition back to a limited deposit guarantee, Singapore cooperated with other jurisdictions (SDIC 2010).

In 2010, Singapore announced a review of its pre-crisis deposit insurance scheme (MAS 2010d; SDIC 2010). Several key features reviewed included the guarantee limit and whether business accounts would be covered (SDIC 2010). In light of this review, Singapore expanded its pre-crisis deposit insurance program, effective January 1, 2011 (Booysen 2013; MAS 2010b; MAS 2010a). The new scheme was administered by the SDIC and guaranteed SGD 50,000, an increase from the pre-crisis SGD 20,000 (MAS 2010b). It also covered business accounts. These protections covered about 91% of all bank deposits (MAS 2010b). In 2017, the MAS recommended increasing Singapore’s deposit insurance coverage to SGD 75,000, in order to cover over 90% of depositors (MAS 2017). The deposit insurance limit was increased to SGD 75,000 in 2018 (Parliament of Singapore 2018).