Protecting bank deposits in
Background In the aftermath of the Thai financial crisis of 1997, the Financial Institutions Development (FIDF), part of the Bank of Thailand, issued an unlimited guarantee of all deposits of money with financial institutions. This was done largely to encourage investor and depositor confidence in the financial system. Since then, confidence in the system has recovered, but the unlimited guarantee remains in place.
The Deposit Protection Act was passed on 6 February 2008 and came into force on 13 August 2008. The provisions of the Act replace the current existing open-ended deposit guarantee with a guarantee that will be far more limited in scope. This article discusses the scope of the new protection scheme for depositors.
What financial institutions are subject to the Act? The Act will apply to commercial banks, finance and securities companies and credit foncier companies.
Meaning of deposits The Act defines deposits as monies that financial institutions receive from any person with an obligation to repay.
Regulatory authority The Deposit Protection Office is established as a regulatory authority with duties to safeguard monies deposited in financial institutions, and to reinforce the security and stability of the financial institution system. A Deposit Protection Office Committee will issue regulations under the Act, and implement the purposes of the Act.
Deposit Protection Fund A Deposit Protection Fund will be established under the Act. The main purpose of the Fund is to make payments to depositors, as permitted/required under the Act.
Deposits that are protected Protected deposits are deposits and interest held by financial institutions, provided that they are in Baht, held in an account in
Applying for the return of money When the license of a financial institution has been revoked, all its money and property must be handed over to its liquidator within seven days from the date of license revocation. Depositors will then be notified of their right to apply for return of deposits within 14 days from the date of license revocation. Depositors must apply and present evidence to support the return of deposits within 90 days of being notified to do so. The Minister of Finance may extend this period on not more than two occasions, and for not more than 90 days on each occasion.
Failure to apply for return of deposit Where a depositor fails to apply for return of money within the time stipulated, the right to reclaim is lost except in the case of force majeure, where a depositor may apply within a period of 90 days from the date the force majeure event ceases to apply. They may still apply as a creditor in any liquidation proceedings.
When payments are made and maximum payment amount The Office will pay each depositor who has applied for payment within 30 days from the date of application. A depositor is entitled to receive all monies shown in every account, subject to a maximum payment of 1 million Baht.
Where the depositor owes money to the financial institution, then that will be set off and deducted from the total monies in all accounts.
Who may claim payment The Office will pay monies due to the depositor who is the owner of the account, or his heir. In the case of a joint account, payment will be made to each depositor according to his legal entitlement to money in the account, as recorded by the financial institution. If the amount of monies deposited by each depositor is not known, it will be deemed that each depositor has an equal share in the account.
Regulations may be issued prescribing a higher maximum payment amount, or the amount to be paid for different types of account.
Subrogation and insolvency Depositors’ rights will be subrogated to the Office’s rights in an amount equivalent to that which has been paid out, and the Office may claim that amount from the official receiver or liquidator in liquidation proceedings. The Office has a preferential right in priority to ordinary creditors of the financial institution.
Breach of duties imposed The Act contains a list of the fines and prison terms that apply to breaches of duties imposed under the Act.
Transitional provisions When the Deposit Protection Office has been established, the previous FIDF guarantee will be abolished. During the first four years of operation of the Act, payments to depositors will be made in compliance with the rules above, provided that the maximum amount of monies protected will be as follows:
- Year 1 - the full amount as shown in the account.
- Year 2 - 100 million Baht.
- Year 3 - 50 million Baht.
- Year 4 - 10 million Baht
The amounts above may be varied under regulations.
Comment The replacement of the open ended FIDF guarantee with a more limited form of deposit protection has been expected for some time. In general, the Thai financial system and the reliability and creditworthiness of Thai financial institutions is far better now than it was in the dark days after the 1997 crisis. It is to be hoped that there will never be a recurrence of the crisis that affected so many Thai financial institutions at that time, and that the rights granted under this Act will seldom need to be invoked.
© Stephen Frost,