Part 1 - Promoting Public Confidence
The uncertainty caused by the pandemic has also highlighted the importance for authorities to establish trust and respond promptly to counter the rapid spread of misinformation. Similarly, in situations of uncertainty during financial crises, public response correlates with the degree of trust it has in the authority in charge. This in turn depends on the reputation and credibility of the authority as well as the authority’s readiness to act decisively and communicate consistently.
This is why, in good times, PIDM strives to attain a high state of readiness in order to address the many possible scenarios and contingencies during a member institution failure. PIDM has expended much effort to place itself in a good position to minimise the risks of uncertainties in today’s financial world and to promote the confidence of the public in Malaysia’s financial sector.
Confidence is generated, among others, by the protection that PIDM provides to financial consumers in a member institution failure. Under the Deposit Insurance System (DIS), PIDM is required to pay depositors, up to the limit of RM250,000 per depositor per bank, in the event of a member bank failure. The payment is to be made to depositors promptly so that they will not have to wait significant lengths of time before they can have access to their money up to that limit.
Similarly under the Takaful and Insurance Benefits Protection System (TIPS), PIDM protects insurance policy and takaful certificate owners against the loss of their eligible takaful or insurance benefits should an insurer member fail, up to the limit of RM500,000 per eligible takaful or insurance benefit.
From the perspective of instilling public confidence, what is equally important is the public’s awareness of the protection provided. To achieve this, PIDM carries out extensive public awareness activities about DIS and TIPS, to ensure that the consumers are aware such protection systems exist and understand the benefits and limitations of both systems. This provides financial consumers with the requisite degree of clarity, reassurance and confidence.
Public awareness and trust in institutions are critical especially during times of uncertainty. The Northern Rock collapse through a bank run in the United Kingdom in 2007, has, for example, generally been attributed to the lack of awareness about the deposit insurer and a lack of trust in the circumstances. PIDM’s goal is to progress from achieving ‘awareness’ about PIDM to the attainment of the more sustainable ‘trust and confidence’ in PIDM over the long term and this will promote greater stability in the financial system.
In these turbulent times, there can be no certainty about what the future brings and we have little control over how events will pan out. What we can do is be in a constant state of readiness and work together with other safety net players to not only protect the public in the event of a member institution failure but by also minimising the occurrence of such an event due to the failure on the part of the member institution to manage their risks effectively.
To address this, PIDM has established systems to promote sound risk management among its member institutions. We will take a closer look at how PIDM does this in the next part of this series.
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