The city's exchange fund will be used to insure all local bank deposits through 2010, Financial Secretary John Tsang said yesterday.

In addition, a fund will be set up to provide standby capital to banks if necessary - a move to shore up confidence in local banks amid the global financial downturn.

Nonetheless, Tsang called the moves precautionary. "I don't expect the measures will need to be triggered," he said. "Our banking system is healthy and robust with capitalization well above international capital requirements."

One of the most established players, Bank of East Asia, suffered a bank run last month amid rumors about its stability.

Rosa Cheng, a customer service officer, said she will be more confident depositing money in banks under the new measure. "I am insured to get all my money back if there is any problem," she said. "The government guarantees my deposits; it should be much better, as the bank will not pass the costs on to me."

But Fiona Chan, a public relations executive, said the new measure was dispensable. "Actually, I don't have much money, so I don't really care about the deposit protection," she said.

Hong Kong's depositors are protected under the Deposit Protection Scheme (DPS) launched in September 2006, but that plan caps the compensation amount at HK$100,000.

The new measure ensures depositors would get back all of their deposited money.

Hong Kong Monetary Authority Chief Executive Joseph Yam said the city's banks have "very low" levels of bad loans and are unlikely to need assistance from the government.

Yam estimated the city's total bank deposits at about HK$6 trillion, but he noted that chances of any local banks requiring access to the emergency funds are "fairly low".

"These are extreme measures arising from extreme times," Yam told reporters.

Tsang said the contingent bank capital facility was to make additional capital available to locally incorporated licensed banks on request, and any such capital injection would be subject to supervisory scrutiny.

(HK Edition 10/15/2008 page2)