Having a Deposit Insurance Institute will benefit both depositors and financial institutions, the Bank of Thailand said.

The central bank went on record in an article written by one of its academics on "The Deposit Insurance Institute and the Efficiency of the Financial System" that by having such an institute, retail depositors - who comprise the majority in the overall system - will have a guarantee their deposits would be definitely covered to the amount set by law.

The system will help ease possible retail depositor panic, which could lead to deposit runs and a 'domino effect', if some financial institutions are in financial trouble.

At the same time, the insurance mechanism will reduce fiscal costs and taxpayer burdens since it is unnecessary for the government to help shore up the financial positions of ailing financial institutions as in the past.

In Thailand, the institute will be set up under the Deposit Insurance Institute Act, which became effective on February 13.

Under the Act, all deposits are insured in the first year of implementation. Then, deposits at a maximum of 100 million baht will be insured in the second year, 50 million baht in the third year, 10 million baht in the fourth year, and 1 million baht in the fifth year.

In this circumstance, depositors will have enough time to adjust to the changing system.

More importantly, retail depositors with deposits of less than 34 million baht could distribute money into various financial institutions.

Overall, Thailand's financial system will be more efficient and its fiscal burdens will be lessened in the future. (TNA)

Jun 23, 2008