BCCI Crisis and subsequent bank runs (1991)
In 1991, the collapse of Bank of Credit and Commerce International led to the closure of its Hong Kong subsidiary, Bank of Credit and Commerce Hong Kong Ltd (BCCHK). The contagion effect of this event was manifested in a number of bank runs in Hong Kong. The damage to confidence caused by the failure of BCCHK was quickly contained, with the banks affected by rumours demonstrating their ability to meet their obligations. In the end, depositors of BCCHK managed to recover almost 100 percent of their money in liquidation.
Public consultation on deposit protection (1992)
Following the failure of BCCHK and a number of contagious bank runs in 1991, the Government conducted a public consultation in 1992
on whether to introduce a deposit protection scheme in Hong Kong. The proposal for establishing a deposit protection scheme was, however, rejected, mainly due to cost, fairness and moral hazard concerns.
Introduction of Priority Claims System in Companies Ordinance (1995)
Although the establishment of a deposit protection scheme did not take place after the public consultation in 1992, the Companies Ordinance was amended in 1995 to accord a higher priority to depositors up to the first HK$100,000 of their aggregate deposits in the event of liquidation of a licensed bank.
Rumour driven bank run (1997)
The spread of rumours triggered by the Asian financial crisis in 1997 adversely affected confidence in individual banks and the system as a whole, resulting in a short and temporary run on a local bank. This incident showed that even though the rumours might be entirely unfounded, depositors could still react strongly. Such events would not be conducive to the maintenance of financial stability, particularly in times of crisis.
Banking Sector Consultancy Study (1998)
In 1998, the HKMA commissioned a consultancy study
on the further development of the Hong Kong banking sector. As a measure to enhance the safety and soundness of the banking system, the study identified the need for introducing an enhanced form of explicit deposit protection in Hong Kong.
Consultancy Study on deposit protection in Hong Kong (2000)
In response to the recommendation in the 1998 Banking Sector Consultancy Study and the growing international trend in favour of an explicit form of deposit protection, the HKMA commissioned a consultancy study on enhancing deposit protection in Hong Kong. A consultation paper
was issued for public consultation in October 2000. The consultation exercise indicated broad support for introducing a deposit protection scheme in Hong Kong.
In April 2001, having considered the results of the first public consultation exercise, the Chief Executive in Council approved in principle the establishment of a deposit protection scheme in Hong Kong and requested the HKMA to work out the detailed recommendations on how the scheme should be structured.
Industry Consultations on specific design features of the DPS (2001)
The HKMA undertook industry consultations , specifically on the funding of the Scheme, and the use of netting to determine entitlement to compensation. The HKMA produced a discussion paper on funding and premium assessment
along with analyses of thefunding approach
and the influence of certain factors on the target fund size
. The HKMA further sought comments from the industry, through a discussion paper
, on whether or not the Scheme should deduct a depositor's liabilities to a failed bank in determining their compensation payment. The comments received in these exercises were subsequently reflected in the second public consultation paper.
HKMA Consultation Paper on how the DPS in Hong Kong should be structured (2002)
In 2002, the HKMA conducted a second round of public consultation
with a view to presenting its proposals on the salient features of the scheme and to seek views of interested parties on these proposals. The proposals of the HKMA were well received by the industry and other interested parties.
Enactment of the Deposit Protection Scheme Ordinance (2004)
Taking into consideration the comments received in the two rounds of public consultation, the HKMA finalised its proposals on the structure of the deposit protection scheme and proceeded to prepare the relevant legislation for the implementation of the scheme. After extensive discussions by the Legislative Council, the DPS Bill was enacted as an Ordinance
in May 2004.
Formation of the Hong Kong Deposit Protection Board (2004)
Following the enactment of the DPS Ordinance
, the Hong Kong Deposit Protection Board
was formed in July 2004 to take charge of the implementation of the DPS in Hong Kong.
Commencement of Deposit Protection (2006)
After two years of intensive preparations, the Board completed the key preparatory tasks for launching the DPS in the third quarter of 2006 and the DPS was launched on 25 September 2006.
Enactment of the Deposit Protection Scheme (Amendment) Ordinance 2010 (2010)
Taking into consideration the comments received in the two rounds of public consultation conducted in 2009, the Board finalised its proposals on the enhancements to the DPS and proceeded to prepare the relevant legislation. After discussions by the Legislative Council, the DPS (Amendment) Ordinance 2010 was enacted in June 2010.
Enactment of the Deposit Protection Scheme (Amendment) Ordinance 2016 (2016)
Backed by the support from the public consultation, the Government introduced the legislative proposals for achieving a faster payout into the Legislative Council. The DPS (Amendment) Ordinance 2016 was enacted in March 2016.