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During the last two years, various bold and unprecedentedmeasures to maintain nancial stability have beenimplemented. And today deposit insurers play a key rolein keeping the calm and never before they have been soappreciated. Before the nancial crisis hit, many bank deposit

insurers were taken for granted, their existence even unknownto some depositors. This global nancial crisis has changedenvironment and has heightened the role of deposit insurers.

Besides maintaining and reinforcing public condence,deposit insurers – especially in times of nancial crisis - helpto prevent disruption to payment systems, to assist troubledbanks in minimizing cost to the nancial system and tosupport solvent banks.

In Asia, a number of countries implemented the measures tominimize external contagion risks from building up in theirown nancial system. They are included increasing depositinsurance coverage and limits which ranged from 100 percentincreases to the announcements of full government temporaryguarantees, broadening the scope of coverage to include

non-insured products and commitments to make depositpayments more fast-acting.The deposit guarantee is a pre-emptive and precautionarymeasure to maintain the stability of nancial system. The moveto blanket guarantee is not something new. During the Asiannancial crisis in 1998 the central banks of some countriesguaranteed all deposits as a part of its efforts to curb capitaloutow from domestic to foreign banks, and from smaller tolarger nancial institutions.In current crisis blanket guarantee has been implementedin Hong Kong, Malaysia, Singapore and Taiwan. Indonesia,Kazakhstan, Philippines and Russia have raised the depositinsurance coverage limit, while India, Japan, Korea and Vietnamhave kept the same level. All provisions of full or blanket

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guarantee coverage were introducedas temporary measures. Increasing tonew deposit insurance coverage forsome countries was designed as onlytemporary measures, while the othersconsidered as permanent measures.

Coverage limit in Asian Countries

in thousand USD equivalent 

In October 2008 the Hong Kong SARgovernment announced the use ofthe Exchange Fund to immediatelyguarantee repayment of all customerdeposits held with all authorizedinstitutions in Hong Kong, until the endof 2010. Under the guarantee, depositsheld with all authorized institutions inHong Kong, including licensed banks,restricted license banks and deposit-taking companies are protected.In Malaysia a temporary government

blanket deposit guarantee wasimplemented through the MalaysiaDeposit Insurance Corporation (MDIC)until December 2010. In addition, tomitigate moral hazard, MDIC monitorsand assesses the nancial health andpotential risks, and institutes appropriatenancial discipline and incentives forprudent risk management of guaranteedinstitutions.

In spite of the fact that the nancialsystem in Singapore has remained stablefor the last difcult years, in October2008 the blanket guarantee on deposits ofindividuals and non-bank customers ofbanks, nance companies and merchantbanks in Singapore, was announcedby the Singapore government until 31December 2010.One of the nancial measures takento maintain the public condence andnancial stability in Taiwan has been

a temporary blanket guarantee fromOctober 2008 to December 2009 and thenone-year extension until the end of 2010.Implementing prompt corrective actionand taking special measures includingrestriction on certain businesses andrequirement of more reporting of banksin decit, facilitation of bank mergershave also been taken as reform measures.Bangladesh, India, Japan, and Vietnamdid not take special actions relating to thedeposit insurance system in response to

the nancial crisis. However all countrieshave used different approaches ondealing with global nancial crisis.Indonesia, the Philippines, Russia andKazakhstan have increased the coveragelimit.In Indonesia deposit insurance coveragehas been increased from IDR 100Million to IDR 2 Billion. Moreover,the government relieves requirements

for obtaining liquidity assistancefrom Central Bank, and improvingcooperation, coordination, andinformation sharing among nancialsafety net players has been provided.Under the PDIC Charter the depositcoverage in the Philippines was d oubled,and PDIC’s co-regulatory authorities

 were also enhanced.In October 2008 in Russia depositinsurance coverage was increasedfrom 400 thousand to 700 thousand

rubles. The Deposit Insurance Agencyreceived a special contribution fromthe government and the right to borrowfunds from the Bank of Russia at lowrate.Korea Deposit Insurance Corporationextended its coverage to include theforeign currency deposits in November2008, and temporarily exempted insurednancial institutions from payingdeposit insurance premiums until 30June 2009.

Deposit Insurers in Asia:measures taken in response

to global financial crisisIn this article Mrs Bakhyt Mazhenova, who Chairs the Kazakhstan Deposit Insurance Fund (KDIF),

introduces the role of Deposit Insurer in mitigating current crisis’ influence on financial system.

The main sources used are a Country Report Paper made up by the Asian Regional Committee

of the International Association of Deposit Insurers (IADI) at the end of 2009, and the survey

“Comparative Analysis on Claims Process and Payout Mechanism in IADI ARC member countries”

conducted by the KDIF in the second half of 2008.

BAKHYT MAZHENOVA

Chair of the Kazakhstan Deposit Insurance Fund 

  Before crisis Adjusted

Hong Kong

IndIa

IndonesIa

Japan

KazaKHstan

Korea

MalaysIa

pHIlIppInes

russIa

sIngapore

taIwan

VIetnaM

13

2

10

92

6

39

18

5

16

15

47

3

200

2

182

92

33

39

200

10

25

200

200

3

Today deposit insurers play a key role in keeping

the calm and never before they have been so

appreciated.

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In Thailand the period of blanketguarantee was extended for two more

 years, and ended in August 2011.Since the start of the crisis Kazakhstanhas seen no technical recession. Theeconomy shrank only in the rst quarter2009. The Government, National Bank ofKazakhstan and Financial SupervisionAgency adopted the Plan on stabiliza-tion of economic and nancial sector in

the end of 2008. Special funds amounted19 billion USD, including 10 billion USDfrom the National Fund, have been ap-propriated in respond to crisis shocks.The National Bank of Kazakhstan, asa sole shareholder, has increased theKazakhstan Deposit Insurance Fund(KDIF) authorized capital to 110 billion

tenge. To avoid deposits outow fromthe banks the deposit insurance coverage

 was increased from 700,000 tenge to5,000,000 tenge. In order to support theDIS member-banks, Kazakhstan DepositInsurance Fund decreased the premiumsrates by 25%.

Also to provide stability on the nancialmarket the National Bank of Kazakhstanhas reduced the ofcial renancing rateto 9.5% in February 2009, and then to7.0% in September 2009. From March3, 2009 minimal reserve requirements

 were reduced from 2% to 1.5% ondomestic liabilities and from 3% to 2.5%on other liabilities, injecting liquidity tobanks in the amount of 50 bln. Tenge.Sovereign Welfare Fund «Samruk-Kazyna» allocated 1 087.5 billion tengefrom the National Fund to implementthe anti-crisis program. These funds

have been intended for stabilization ofthe nancial sector, solving problemsin the real estate market, support tosmall and medium businesses, imple-mentation of innovative, industrial andinfrastructure projects.In order to support the nancial sectorin the crisis period the Governmentprovided liquidity to banks to replace25% of the shares, and «Samruk-

Kazyna» placed deposits in large banks, which converted into the tier one capital.All measures taken by the governmentin banking sector have resulted success-fully. In spite of the restructuring twolarge banks (BTA Bank and AllianceBank), there was no bank deposit runin Kazakhstan. Moreover, for the period

2006-2009 the individuals’ deposits inbanks have been increased nearly twotimes – from 1034.2 billion KZT to1936.3 billion KZT (or about USD 13.0billion).The present crisis has shown thatonly deposit insurers with sufciently

 wide mandates, operational independ-ence, appropriate powers, and wheregovernment funding is assured, havebeen highly effective in building andmaintaining public condence, anddealing with nancial crisis. Today,many deposit insurers are still limitedto being paybox agents. When a bankfails, their only responsibility is toreimburse depositors. They, therefore,cannot contribute effectively to nancialstability. It is not surprising that depositinsurance is still the weakest link withinmost safety net frameworks.

The current crisis showed theimportance of Deposit Insurer (DI) notonly in developing but also in developedcountries. Some European countries

 with well-developed nancial marketsand adequate supervisory regulationshad to enhance the DI to overcome thenancial crisis’ consequences effectively.In order to strengthen their own DIs,countries joined to the internationally

recognized organization such as IADI.In June 2009 the IADI issued theCore Principles for Effective DepositInsurance Systems. The Core Principles

 were developed by a joint workinggroup between the Basel Committee andIADI, address a range of issues includingdeposit insurance coverage, funding andprompt reimbursement. They also focuson issues related to public awareness,resolution of failed institutions andcooperation with other safety net par-ticipants, including central banks andsupervisors. Events during the recentinternational nancial turmoil illustratethe importance of effective depositorcompensation arrangements and theneed for authorities to agree on an in-

ternational set of principles for effectivedeposit insurance systems.KDIF joined the IADI in 2003, andsince then takes part in the activitiesof this respectable organization. IADImembership encourages KDIF todevelop the domestic DIS in compliance

 with the Core Principles and to performits mission using the achievements ofthe world best practices.In terms of global nancial crisis DepositInsurer is a vital institution representingone of the pillars to stabilise an economicsystem. As a result, it may be noted thatthe role of a deposit insurance systemin today’s nancial environment willcontinue to evolve and expand. CAF

k a z a k h a n

The present crisis has shown that only deposit insurers

with sufficiently wide mandates, operational independence,

appropriate powers, and where government funding

is assured, have been highly effective in building and

maintaining public confidence, and dealing with financial

crisis. Today, many deposit insurers are still limited to being paybox agents. When a bank fails, their only responsibility

is to reimburse depos itors. They, therefore, cannot contribute

effectively to financial stability. It is not surprising that

deposit insurance is still the weakest link within most safety

net frameworks.

Kazakhan dp inan fn jsc

21, Kkm-3,

am, 050040

rbic f Kkh

/fx: +7 727 2720551

@kif.k

.kif.k