Zeti Akhtar Aziz: Deposit insurance and consumer protection Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the "Deposit Insurance and Consumer Protection" 6th International Association of Deposit Insurers (IADI) Annual Conference, Kuala Lumpur, 31 October 2007. *  *  *  Introduction As the international and domestic financial landscape continues to transform, the quest to secure financial stability has become increasingly challenging. Regardless of the stage of development, financial systems have continued to be vulnerable to crisis that have resulted in financial disruptions that have had severe economic repercussions. In these circumstances regulators and financial safety net frameworks have been tested to the limit. While the rapid pace of globalisation, the rising internationalisation of the financial system and the advances in technology have brought benefits in terms of increased access to new markets, encouraging financial innovation and increasing consumer choice, it has also brought new risks to the financial system. The intensification of cross-border financing, and the growing complexity of financial structures has resulted in new international inter-linkages which has increased the international interdependence. The transmission of negative shocks in one country to others via the international financial system has demonstrated the potential for financial crises and economic disruptions to spread on a global scale. These concerns have been brought into the forefront recently with the developments in the sub-prime mortgage market in the United States and its contagion effect on financial systems in other parts of the world.

More recently, the Central banks in the East Asian region have come together to put in place a comprehensive regional surveillance system that is supported by a comprehensive integrated crisis management framework that would deal with any imminent financial crisis in the region. These initiatives are aimed at effectively preventing or containing developments that could trigger destabilising consequences, thereby promoting regional financial stability. Deposit insurance system Ladies and Gentlemen: Following the restructuring and reform of our financial system, Malaysia has two years ago implemented the deposit insurance system as part of our efforts to build a cohesive and mutually reinforcing financial safety net system. The deposit insurance system has an important role not just in promoting confidence with explicit coverage of deposits, but also in reinforcing sound risk management practices. It therefore has embed features that complements the supervisory process in promoting sound risk management practices in the financial institutions. In addition, the deposit insurance corporation in Malaysia is also mandated with the responsibility for the “least-cost” resolution of problem financial institutions. 4  BIS Review 130/2007  A comprehensive approach was thus adopted in establishing the Malaysia Deposit Insurance Corporation (MDIC). To promote depositors confidence, the deposit insurance scheme was designed to ensure that there was optimum coverage with sufficient reach to retail depositors. In designing the deposit insurance scheme, about 95% of all depositors are covered in full while in value terms about 35% of total deposits is covered.