On Tuesday, the deposit protection board of the Hong Kong Special Administrative Region (HKSAR) proposed to raise the protection limit of deposits to provide a better buffer for depositors while adding to the banking system's stability.
The board said the cap would be raised to 800,000 Hong Kong dollars (about 102,257 U.S. dollars) from the previous 500,000 Hong Kong dollars, adding that the proposal was made after a three-month public consultation ending in October.
The board said that it has carefully considered all the comments received during the consultation and relevant factors, and decided that the 60 percent increase in the protection limit can compensate for the cumulative inflation over time while translating into around 20 percent increase in the real value of deposit protection.
The Hong Kong Monetary Authority said in a statement that the deposit protection scheme has played an important role as the "guardian of deposits" in Hong Kong since its inception in 2006.
"It gives small depositors peace of mind, making them less likely to be affected by rumors and lose confidence in individual banks or the banking system as a whole. This, in turn, can help reduce the likelihood of rumor-driven bank runs and, hence, ripple effects on the entire banking system. Deposit protection is indeed a core element of the overall financial safety net," it said.
The board said it will work closely with the HKSAR government to introduce the amendment bill to the Legislative Council in the next few months. The target is to implement some of the policy proposals covering the enhanced protection limit in the fourth quarter of this year.
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