Deposit Insurance Act Amended to Afford Better Protection
Chun-yih Cheng

The Deposit Insurance Act was amended before the end of 2010 to expand the coverage to foreign currency deposits and interests on all covered deposits accrued until the last business day of the failed banks. However, the insurance payments will be made only in the local currency (New Taiwan Dollar) regardless the denomination of deposits.

On the other hand, the Act was also amended to clarify that only onshore deposits will be insured. As to the deposits with offshore banking units (OBUs), because OBUs are physically located onshore but legally treated offshore, it will be questioned whether the deposits with OBUs are onshore or offshore deposit. To clear any doubt, the Act expressly states that the deposits with OBUs will not be considered onshore deposits.

On a separate but related issue, the government announced that the maximum insurance payment under the Deposit Insurance Act will be reduced from the full amount protection to NTD 3 Mio. Amidst the financial tsunami, in order to prevent bank run and systemic risk, the government increased the maximum insurance payment from NTD 1.5 Mio to 3 Mio, and, within one day, to full amount protection. Such full amount protection was originally set to expire at the end of 2009. But, because the economic turmoil had not been settled, the government announced in 2009 to extend the full amount protection to the end of 2010. As the financial tsunami had allegedly come to an end, and the economy has regained its momentum, the government decided to scrap the full protection regime and go back to the normal insurance mechanism to set a maximum payment at NTD 3 Mio.