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Draft law seeks SBV’s early intervention in bank runs

The Saigon Times

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HCMC – An early intervention by the State Bank of Vietnam, or SBV, should be needed when a bank run occurs, according to a draft of the amended Law on Credit Institutions.

Nguyen Thi Hong, governor of the SBV, or the central bank, presented the draft at the National Assembly Standing Committee session on May 9.

Having learned from international experiences, such as the collapse of Silicon Valley Bank and Signature Bank in the U.S., the SBV included a provision on early intervention in a bank run, Hong said.

She added an early intervention by the central bank would help guarantee safety for the whole banking system.

The draft also stipulates that the central bank should intervene early in those banks having accumulated losses exceeding 20% of their charter capital and reserves.

Those banks should be allowed to take out zero-interest loans from the SBV to promptly deal with their liquidity problems.

However, the National Assembly Economic Committee threw its weight behind the proposed early intervention by the SBV but said the draft just provides provisions for dealing with banks that are already in trouble.

The SBV should intervene before a bank finds itself in trouble; otherwise, the safety of the entire banking system would be at risk, said Vu Hong Thanh, head of the NA Economic Committee.

The draft also suggests that the SBV would have the power to restrict the decision-making rights of bank leadership and suspend a credit institution in case it violates laws and regulations. The SBV should be authorized to investigate suspected rule violations by a bank.

This draft is designed to ensure the smooth operations of the banking system, and enhance the SBV’s capability to oversee banking operations, prevent manipulation, group interests and cross-ownership, said Nguyen Thi Hong.

The NA Economic Committee asked for clarification of the SBV’s investigative authority.

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