Financial institutions, not taxpayers, should pay for the benefits of financial stability underpinned by the deposit insurance system, Jean Pierre Sabourin, chairman of the executive council and president of the International Association of Deposit Insurers (IADI), said in an interview on Thursday.
But ultimately, the growth of public awareness is key to a well-functioning financial safety net, he said.
The state-run Central Deposit Insurance Corp (CDIC, 中央存保) had invited Sabourin to address a forum on bank crisis management and international cooperation on Friday.
During his visit, Sabourin also met central bank governor Perng Fai-nan (
"Financial institutions are doing business mostly at the cost of depositors' funding. It is a privilege and a trust business," Sabourin said in the interview.
Banks play the role of financial stewards, and it is their obligation to protect depositors. Financial institutions should think more about stakeholders, not only shareholders, he added.
Deposit insurance is a guarantee to depositors if a bank fails. The system is designed to provide protection for small, unsophisticated depositors who are not capable of assessing the risks facing the financial institutions where they deposit money.
In Taiwan, the maximum insured amount for each depositor will be raised to NT$1.5 million (US$45,166) from NT$1 million, based on the amended Deposit Insurance Act (存款保險條例).
The system is also aimed at helping restore or maintain confidence in and the stability of deposit-taking institutions and the financial sector as a whole.
In this respect, Sabourin said, financial institutions should pay for the benefits of stability that they enjoy, and those with higher risk levels should pay more.
"If they cannot afford the premium, they should not be in the business," said Sabourin, who has more than 30 years' experience in deposit insurance and has guided more than 40 troubled financial institutions.
Sabourin is founder and current head of the IADI. Established in May 2002, the IADI is a non-profit organization constituted under Swiss Law and a separate legal entity domiciled at the Bank for International Settlements in Basel, Switzerland.
The association has 47 members consisting of deposit insurers, central banks and supervisory agencies from around the world. It has a total of 67 participants, including the IMF and Asian Development Bank.
Taiwan's CDIC is one of the founding members of the IADI. CDIC President Johnson Chen (陳戰勝) represents Taiwan as a member of the international association's executive council and governance committee, as well as chairman of the research and guidance committee.
"My trip to Taiwan is to share and transfer knowledge ... and bring the CDIC's experience in areas like a differential premium system and risk assessment ... to Malaysia," Sabourin said.
The industry veteran now also heads the Malaysia Deposit Insurance Corp, set up in 2005, after 12 years of service at the Canada Deposit Insurance Corp.
Malaysia, where the deposit insurance system is in a fledgling stage, is expected to introduce a differential premium system next year, to replace the current flat-rate premiums that ignore financial institutions' level of risk.
To build an effective financial safety net, the growth of public awareness is crucial and necessary, Sabourin said.
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