Economist calls for calming fears over bank deposits during DDO

6 July 2023 02:28 am - 9 - {{hitsCtrl.values.hits}}

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If there is a panic run, that is when banks fail. Not because they don’t have capital

- Dr. Nishan de Mel

By Shabiya Ali Ahlam

Amid the growing concerns among bank deposit holders regarding the potential negative consequences during the progress of the Domestic Debt Optimisation (DDO) initiative, senior economist and Verité Research Executive Director Dr. Nishan de Mel said such fears appear to be unwarranted.
He asserted the need to put out the “unnecessary” fears regarding bank deposits being unsafe as a result of the DDO, as the last thing needed is the eruption of a panic attack that could result in depositors withdrawing their funds.

Dr. Nishan de Mel
PIC BY WARUNA WANNIARACHCHI

“If there is a panic run, that is when the banks fail. Not because they don’t have capital. Nobody can stop what will happen to banks with a panic attack. Depositors will want to withdraw their money immediately and that is very hard to manage. It is important that we don’t create a panic attack,” de Mel told an investor symposium organised by First Capital in Colombo.

He asserted that the bank deposits being unsafe is not a sensible concern to have, unless one is worried about hurting equity holders.
“Equity holders of banks are those who can invest in bonds and can take a little bit of a cut back. That is where the pain should go. Never of deposit holders,” assured Dr. de Mel.

Justifying his stance, Dr. de Mel noted that deposits were always safe and should always be safe, unless a government or a country very significantly mismanages the regulatory factors.

The reason is, with deposits, the contract is with the bank and in sovereign bonds or domestic or international sovereign bonds, the contract is with the government, he pointed out.

“… it is the bank owners who are in trouble, not the bank, simply because capital is easy to put back,” he said, pointing out that the local banks are well-capitalised.
Even if the banks are faced with less capital when the sovereign bonds are restructured, at best it creates a capital adequacy problem, added Dr. de Mel.

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Comments - 9

mal.com Thursday, 06 July 2023 07:32 AM

People are disgusted and panic because the governments, mainly after 2005, very significantly mismanaged financial regulatory factors and they are unfairly forced to pay for it now. Govt. has launched a salami attack on working people and future babies to be born through this so called optimisation on their compelled savings without much pain for capitalists. Everybody know of how sovereign royal 'stakeholders' became big bill bond holders through insider trading.....

Aarthika Gathakayos galore Thursday, 06 July 2023 08:24 AM

Lanka's Emile Soundranayagam created history in foreign Nigerian economics. Now Rajapakses with their stooges, PB, Cabraal and some known villains have done greater damage to our own nation. Aartika Gaathakyos of every shade!

Ara Thursday, 06 July 2023 08:29 AM

Initial deposits are freezed

Jude Thursday, 06 July 2023 08:43 AM

Sooner or later people gonna pull the deposits from banks and that panic gonna create the chaos, yeah that's the result of DDR, will create the domino effect, Huh

Senior Citizen Thursday, 06 July 2023 09:58 AM

All these problems in the country are man made and the Rajapaksas and their Cronies who are responsible carry on regardless unpunished as someone of the same brand who unfortunately took power is safeguarding them.

Rex Jarkie Thursday, 06 July 2023 12:39 PM

WHY HAS THE BANKS REDUCED FIXED DEPOSIT INTEREST RATE POOR SENIOR CITIZEN ARE SUFFERING AS ALL ALL OTHER ITEMS HAVE GONE UP UP

Disgusted senior citizen Thursday, 06 July 2023 05:23 PM

YES, SURE, I AM DEPENDING ON MY MONTHLY INTEREST FOR A LIVING.. FOOD AND MEDICINES AND RENT TOGETHER WITH TUK TRANSPORT TO VISIT THE DOCTORS ARE SO HIGH .. HOW DO WE MANAGE IN OUR OLD AGE WITHOUT HELP ... THIS IS UNFAIR BY US OLD FOLK.

Senior citizen Thursday, 06 July 2023 02:37 PM

We senior citizens need big money to pay our rent and buy medicines and food together with travel by tuks to consult the doctors on a monthly basis... this is our hard earned cash... please pay a decent FD rate for us to live in our old age.

Oorapola Maddumage Friday, 07 July 2023 05:49 AM

This country needs a group of well educated economists to make plans - not unelected, refused minsters who have experience of Robbin banks! The country needs educated honest legal educators followed by the rules to run the country. How about the parliament?

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Economist calls for calming fears over bank deposits during DDO

Comments - 9

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