Common efforts urged in effectively preventing sudden deposit withdrawal

Over the past two years, banking activities confront with high exposure to risks in parallel with the situation that Vietnam economy faces difficulties, particularly moral hazards. In reality, some credit institutions have faced moral hazards and eventually, some leaders of those institutions were arrested for their lack of responsibility causing serious consequences. Moral hazard shall in their turn lead to risks of liquidity and information imbalance. A depositor shall immediately plunge into a bank to withdraw his/ her money if they happen to know leaders of a credit institution is arrested, leading to temporary liquidity loss, called “liquidity risk”. Depositors are interested in the arrest of a credit institution’s leaders without taking care of causes, current situation, liquidity, payment and even their legitimate rights and interests in that insured institution, misleading them to loss of confidence in the banking system. This is the so-called phenomenon of risks of information imbalance and as results, it will leads to sudden withdrawal of deposits.

 

When the phenomenon of sudden deposit withdrawal occurs, depositors become first subject to suffer from losses as they have no choice to forcedly withdraw their money before maturity without payment of interest and costs of investment opportunity and transfer, followed by credit institutions who have to witness a decrease in total assets and financial back-up funds, causing additional costs and damages to their shareholders and owners, as well as an unexpected reduction in share prices. To respond to a sudden withdrawal of deposits, a credit institution shall have to mobilize another great amount of liquidity, sell off their assets or borrow money of high interest rates to promptly meet its customers' cash demands. Without timely resolution, the phenomenon may spread to other credit institutions and eventually the entire economy. In addition, credit institutions facing a sudden withdrawal of deposits shall not have sufficient money for making loans to investors, causing stagnation of projects and hurting the economy. After the sudden withdrawal, some depositors tend to use it for speculation, possibly causing a push up for higher prices, an increase in inflation, reduction in consumption, weakness of the banking system’s liquidity, making the economy fall into a crisis.

 

 

Thus, prevention of sudden withdrawal is one of the most important tasks, of which the State Bank of Vietnam has closely coordinated with the DIV, press and media to fulfill tasks.

 

 

- In the capacity of the SBV: if incidents occur in the banking system, the SBV as the role of the leading authority, shall have to process timely and effective information in order to make public feel assured and ensure the operation of credit institutions is put into normal situation. Recently, leaders of some major banks were arrested with no sudden withdrawal of deposits occurring; while people have a firm trust and feel assured to deposit their money at credit institutions. Meanwhile, the SBV has built a program on sharing information with the DIV so that the two parities jointly make review of operations of credit institutions and are ready to deal with any incidents.

 

 

- In the capacity of the DIV: the DIV’s working team shall be present timely and promptly at credit institutions that fall into temporary loss of liquidity upon being kept informed of the situation, in order to respond to and make depositors feel assured. Payment of insured deposits has been implemented quickly and timely in parallel with effective inspection and supervision. The DIV sends their periodic supervision reports of credit institutions to the SBV on monthly and quarterly basis. At the same time, the DIV makes prompt recommendation to solving violations of regulations on banking operation safety, risks that cause insecurity of the banking system.

 

 

- In the capacity of press and media: If an incident occurs, communication for public awareness must be accurate, timely and trustful. It is necessary to make clear responsibilities of communication in order to prevent risks of information imbalance. Recently, the DIV has strengthened the quality of communication for policies on deposit insurance, aiming at limiting wrong and false information. The DIV has organized some dialogues and roundtable meetings; posted articles on newspapers, magazines, websites to help people understand policies on deposit insurance and their legitimate rights and interests at credit institutions, thereby increasing public confidence in the banking system.

 

Such a sudden withdrawal of deposits is not expected by any nations as its consequences are unpredictable. Therefore, prevention of sudden withdrawal of deposit requires close coordination among competent authorities. The relationship between the State Bank, DIV and press & media is a mutual assistance in term of state policy instruments, ensuring safe and sound operation of the banking system.