Deposit insurance makes clear where depositors stand: depositors know exactly how much of their money will be protected if a bank fails. Government statements that it will not bail out depositors beyond the insured amounts become more credible. However, deposit insurance is not without its downside. If its coverage is too broad, or it insures too large a proportion of deposits, it can cause the same problems as a government guarantee. A poorly designed deposit insurance scheme may make the banking system less rather than more stable. These problems can be mitigated if the deposit insurance scheme only insures small deposits, or sets premiums in line with the relative riskiness of banks, or discriminates between banks and subsidiaries that are incorporated here from those that are not. These are complex issues that need careful study, which MAS has begun. Conclusion This liberalisation package will provide further impetus for upgrading and progress in the local banks and Singapore's financial sector development. We will review the progress made in another 2-3 years, before deciding on further moves. Consolidation and continued liberalisation are important in building strong banks. But they are not in themselves sufficient. Banks must press on to upgrade their capabilities. They must keep abreast of international best practices, new products, technological developments and new ways of doing things, while retaining the support and confidence of consumers. ABS can play a part to help the banks do this. The government will do its best to maintain a sound regulatory framework, conducive to competition and innovation.
The federal funds rate would likely remain unchanged for another year or two, based on the information available today, and the winding down of the bond-buying program will come eventually. Monetary authorities in other advanced economies have also employed policy tools with similar features albeit with some variations in the timing, scope, and size. This configuration of monetary policies in major countries has created a challenging environment for small open economies to conduct policy. In the post-crisis period, the relative fundamental strength of emerging market economies was already drawing in substantial capital inflows. The additional push from this extraordinary stimulus, and the  BIS central bankers’ speeches  1  reach-for-yield behavior associated with it, has compounded the pressure. Many emerging market central banks have found themselves at critical junctures where broad reappraisals of their monetary and capital account policy frameworks were necessary. Take Thailand as an example. Since the beginning of the episode, we have adopted a multi-dimensional response to the spillovers. Currency appreciation was the main cushion against rising inflows. At times when exchange rate volatility became excessive in our view, we undertook some foreign exchange intervention. But we were mindful of intervention costs and its limited effectiveness. We also further deregulated controls on outflows. This was part and parcel of our longer-term plan to encourage outward investment by Thais. At the same time, we raised the policy interest rate in response to expanding domestic demand, rising price pressures, and strong credit growth.