The Singapore Government has guaranteed all bank deposits in Singapore. I think that this is a bad idea. It is putting taxpayers at risk, without any appropriate return.
Here is a possible risk. A foreign bank receives $1 billion of deposits in Singapore. The bank engages in risky trading and lost $1 billion. After deducting its capital, the remaining loss has to be borne by the Singapore Government, actually the taxpayers of Singapore.
The Monetary Authority of Singapore may have ways of monitoring this risk and preventing it. But, can MAS look after the detailed operations of all the banks in Singapore? Do they have the resources and expertise?
Suppose the Singapore Government does not give this guarantee. Some of the money in Singapore will flow to Hong Kong or Malaysia. To keep the money in Singapore, the banks have to offer higher interest rate, maybe 3%, 4% or 5%. This will allow the deposit rate to increase to the market rate, and give the public a better interest rate on their savings. This is a good idea.
If there is a real need to guarantee the deposits, perhaps it should be up to 50% instead of the total sum. Maybe, the bank should pay some guarantee fee to the Singapore Government.
I hope to raise this point to the Singapore Government at an appropriate time, if my views are confirmed to be sensible. I look forward to receive the views of knowledgeable people on this matter.
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