Depositors have no say in banks' business activities

I am surprised by Mr Christopher Tang Wai Leng's view that DBS Bank owes depositors an explanation for its loan losses ("DBS must explain Swiber debacle"; last Saturday).

Yes, in classic banking theory, banks lend out their customers' deposits, so if there is a big loan loss, a bank could fold and it is possible that customers won't be able to get their deposits back. However, this theory is long out of date.

A bank is a corporate entity separate from its customers (both depositors and borrowers).

As long as customers can get their deposits back with the agreed interest, which is still the case with DBS, depositors have no say in the business activities of the bank.

Banks have capital, profits and reserves, their own borrowing ability, and even a possible government bailout, with which to first fund losses (well before getting to deposits).

If anyone, it is the bank's shareholders who deserve, or have a right to ask for, an explanation, certainly not its depositors or other customers.

Gerard de Vaz

A version of this article appeared in the print edition of The Straits Times on August 10, 2016, with the headline 'Depositors have no say in banks' business activities'. Print Edition | Subscribe