This content is from: Local Insights

Amended Deposit Insurance Act offers more protection

Chun-yih Cheng

The Deposit Insurance Act was amended before the end of 2010 to expand its coverage to foreign currency deposits and interest on all covered deposits accrued until the last business day of the failed banks. However, insurance payments will be made only in the local currency (the New Taiwan dollar) regardless of the denomination of deposits.

The Act was, however, also amended to clarify that only onshore deposits will be insured. As to deposits with offshore banking units (OBUs), because such units are physically located onshore but legally treated offshore, it will be questioned whether deposits with OBUs are onshore or offshore deposits. To clear up any doubt, the Act expressly states that the deposits with OBUs will not be considered onshore deposits.

On a separate but related issue, the government has announced that the maximum insurance payment under the Act will be reduced from the full sum deposited to NT$3 million ($103,000).

Amidst the financial tsunami, in order to prevent bank runs and systemic risk, the government increased the maximum insurance payment from NT$1.5 million to NT$3 million, and, within one day, to full-amount protection.

Such full-amount protection was originally set to expire at the end of 2009. But, because the economic turmoil was not yet settled, the government announced in 2009 that it would extend full-amount protection to the end of 2010. As the financial tsunami has allegedly come to an end, and the economy has regained its momentum, the government decided to scrap the full protection regime and go back to the normal insurance mechanism, setting a maximum payment at NT$3 million.

Chun-yih Cheng

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