How are bank deposits insured?

Everyone in the office believes one of the big HK banks will fold soon and, trying to be the voice of reason, I keep saying the deposits are insured so there's no need to panic (and I don't believe it's true in any case).


But then I thought about it - are HK deposits insured and for how much? Anyone know before I continue to spread false safety rumours?


Thank you!

I don't know the details of the insurance here but you are right to be concerned. In many (most?) countries with this sort of insurance it only covers a certain amount per person.


There is also the possibility that the bank will be bought. In this scenario deposits are most likely pretty secure.

HK banks are regulated by the HK Monetary Authority. They supervise the Deposit Protection Scheme Ordinance. This gives a coverage limit of HK$100,000 per depositor per bank. All licensed banks in Hong Kong are members of the Scheme.

Thank you both.


Now I'm a wee worried. HKD100,00 per person per BANK? I assumed in was per account, so I split everything up (tax savings account, emergency account, savings account and current account). That's not much money, it might be safer under my bed! Good to think about.


I found the actual law if anyone is interested...

Depost protection scheme

The Ordinance, enacted on 5 May 2004, providing for the establishment of a deposit protection scheme in Hong Kong. In accordance with the Ordinance, a deposit protection scheme with a coverage limit of HK$100,000 per depositor per bank will be established in Hong Kong. The scheme, which started operation on 25 September 2006, is managed by the Hong Kong Deposit Protection Board. All licensed banks in Hong Kong are members of the Scheme unless otherwise exempted by the Board.

Firstly, the HK bank in question is not going to fold. On the contrary they have been victims of a malicious rumour and have now passed the matter to the HK monetary authority and the HK Police. More on that here...


0654 GMT [Dow Jones] Bank of East Asia (0023.HK) drops 7.0% to HK$25.10 after earlier dipping to HK$23.95, vs HK$26.60 midday, as investors jittery over ongoing credit crisis spooked by rumors about bank. BEA notes rumors about bank's stability being spread by SMS, but tells Dow Jones Newswires there's no problem with bank's financials, its branch business operating as usual; says such rumors "no basis in fact," but deposit withdrawals slightly above average today. Adds, it has reported incident to HKMA, HK police. One witness on street tells Dow Jones that there's longer-than-normal queues at BEA's central headquarters, though sentiment nowhere near panicky. BEA volume picks up significantly in afternoon, now has HK$432.5 million vs HK$224.3 million all of yesterday.(RLI)


And coverage for deposits is as already stated

had a good laugh at all the mindless sheep lined up at my branch, eager to pull out their cash for no reason.

Banking is a confidence game. Mindless people can bring a good bank down if enough of them withdraw their money. That's why Joseph Yam had to say something and Li Kashing and David Li proceeded to buy the shares.


Let's hope for the best.

There's a reason why banks give preferential interest rates if you deposit gigantic sums: that's 'cos their insurance premium is capped at HK$100K payout.


The share price is sometimes not a good indicator of the safety of your deposits 'cos depositors are secured lenders to the banks and so get first crack at their assets if they go under. Shareholders are right at the bottom.

The other thing is Hong Kong banks are flush with deposits to begin with as speculative China cash has poured into the SAR over the last decade, they are having trouble lending out what they have in the first place so they are well above capital adequacy norms, and that is why deposit rates are so low in the first place. The system in general at the moment is very liquid anyway.


That doesn't mean that if they have significant exposure to an illiquid asset or assets that they could survive a complete write off though, only that a short bank run can be contained. If it went on for more than a few days, particularly in a small place like Hong Kong eventually it would buckle. We have had our fair share of runs in the past, and you would have thought the government would have enacted depositors insurance a lot sooner than it did, they only enacted legislation two years ago despite the BCCI debacle which is was close to two decades ago now, where the queue for a bus was mistaken for a run on the bank, though small depositors for the most did get a lot of money back if not all of it, in that failure. I would have thought the government would have done it much sooner than they eventually did.


To begin with the stock price is not a fair indicator and what has been said I would have to agree with, shareholders are right at the back of any queue in terms of any claims, but if the institution does come under sustained attack, the price of its stock is going to tell you that whoever it is, is not going to be around for much longer in their present form anyway. Whether that is merger, nationalisation or bankruptcy is anybody's guess.


The Hong Kong Monetary authority in the past has not been afraid to let banks fail unlike their US and UK counterparts, and in this environment, I wouldn't begrudge anyone taking out all of their money simply because they heard a rumour. I probably would not do it myself but I am sure I would cry over spilt milk. There is some BEA exposure, but I think it is paltry, Almost all banks are lying about their published interbank lending rates, and a lot of them have not written down fully for fear that their borrowing will be curtailed and collateral requirements and borrowing costs are increased. One is not a fool for mistrusting the banking system, it is a massive ponzzi scheme in the first place.

It's HKD100,000 per depositor bank (not per account). http://www.info.gov.hk/hkma/gdbook/eng/d/dep_protect_sch_ordin.htm

If you want a solid bank with low risks (no such thing as "no risk"), I would recommend DBS which is backed by Temasek, Govt of Singapore etc. HSBC is strong too.

But of course, one has to pay for security: their interest rates are probably really low.

rates are not great to begin with on HK dollar, but to be honest if this has taught us anything, its that large banks with lots of depositors are most certainly too big to fail and there is in fact an implied government guarantee irrespective of whether the govt is a stake holder or whether they care to admit it. The HKMA allowed BCCI to go under, but that was the way the winds were blowing globally with that bank, and back then there was far less interdependency. Moral of the story deposit with a big bank, as big as you can get and you will be fine


Though I read some article which claimed that Deutsch Banks liabilities were 80% of German GDP. I dont know how true that is and I'm a little skpetical, the point being made was that even if there was a guarantee or a bailout, some countries could not afford it.


http://www.hindustantimes.com/StoryPage/StoryPage.aspx?sectionName=HomePage&id=40d6f914-cfc8-4c3e-8180-666b361a7c02&&Headline=Adam+Smith+isn%E2%80%99t+dead


there is the story, got pulled up in my google news aggregator