The Deposit Insurance Illusion: Why It’s Mostly Marketing

Banking has always been subject to change. Regulations tighten, economic conditions shift, and institutions adapt—often in ways that are not favorable to depositors. Across Southeast Asia, once-accessible financial hubs are becoming more restrictive, introducing compliance measures that make even routine banking a challenge.

This article examines the realities of banking systems beyond public relations narratives and assesses where genuine risks and opportunities exist.

The Limits of Deposit Insurance

Malaysia and Indonesia both have comparatively large deposit insurance schemes for the region. Malaysia's Perbadanan Insurans Deposit Malaysia (PIDM) and Indonesia's Lembaga Penjamin Simpanan (LPS) were both implemented in 2005, in response to financial crises and as measures to bolster public confidence in their banking sectors. However, the size of these deposit insurance schemes does not inherently indicate greater bank stability. These schemes were established primarily as psychological tools to reassure depositors rather than as reliable backstops in the event of systemic failure.

With the internet enabling greater transparency and open discussion, it has become increasingly clear that deposit insurance functions more as a marketing mechanism than as a meaningful safeguard. When financial institutions collapse, as seen in the case of Silicon Valley Bank, government intervention often overrides pre-existing deposit insurance limits, rendering them largely symbolic.

Deposit insurance is commonly presented as a guarantee of financial security in the event of a bank failure. However, the practical benefit of these protections is often overstated. While most countries have deposit insurance schemes, the coverage is designed primarily for small account holders rather than those with substantial deposits.

Cambodia does not have a formal deposit insurance scheme. While this may appear concerning at first glance, understanding how deposit insurance actually functions—and its limitations—places this absence into perspective.

What Deposit Insurance Really Covers

Most national deposit insurance programs provide coverage that is insufficient for significant account holders. A comparative look at protection levels in key banking markets illustrates this point:

The takeaway is clear: Deposit insurance does not provide meaningful protection for those holding substantial sums in any single institution. Even in the United States, where the FDIC provides up to $250,000 in coverage, larger depositors remain exposed.

The Silicon Valley Bank (SVB) Precedent

Silicon Valley Bank’s failure in 2023 serves as a prime example of deposit insurance’s limited relevance in large-scale banking crises.

• The FDIC officially guarantees only up to $250,000 per depositor.
• 93% of deposits at SVB were uninsured, far exceeding the FDIC limit.
• Yet, when SVB collapsed, the U.S. government stepped in and covered all deposits, including those well above the insured threshold.

This case reinforces the idea that deposit insurance matters far less in major crises, as government intervention tends to supersede existing protection schemes.

Assessing the Risks in Cambodia

The absence of deposit insurance in Cambodia does not necessarily equate to higher risk. In fact, in systems with deposit insurance, the guarantee often serves as a psychological tool rather than a substantive safeguard.

Key considerations:

1. Deposit insurance is primarily about preventing bank runs rather than providing robust protection for large accounts.
2. Government intervention is the real safety net, as seen in the SVB case.
3. Banking stability and liquidity are more meaningful indicators of deposit security than whether an insurance scheme exists.

What Matters More Than Deposit Insurance

Instead of relying on deposit insurance, depositors should evaluate more concrete factors when selecting a bank:

• Liquidity and capital reserves – A well-capitalized bank is less likely to fail, regardless of whether deposits are insured.
• Regulatory oversight – Cambodia’s central bank monitors financial institutions closely, though its regulatory framework differs from that of Western markets.
• Diversification – Holding funds across multiple banks is a more effective risk-management strategy than depending on deposit insurance.

Conclusion

Deposit insurance is widely regarded as a safety measure, but for large depositors, it provides little meaningful protection. The intervention in the Silicon Valley Bank failure demonstrates that when major crises occur, governments act outside the boundaries of formal insurance schemes.

Cambodia’s lack of deposit insurance should not be viewed as a singular risk factor. For those who evaluate banks based on financial health rather than marketing assurances, the regulatory environment and economic landscape matter far more than any stated insurance coverage limit.

Disclaimer: The information provided in this article is accurate as of the time of writing. Banking policies, regulations, and offerings may change without notice. Readers are encouraged to verify details directly with financial institutions before making any decisions. Banking Nerd is not responsible for any changes that occur after publication.

Sources

[1] Banking and financial services | Open Development Cambodia
[2] FDIC Insurance Limits 2025
[3] Silicon Valley Bank Failure and FDIC Response
[4] Deposit Insurance Protections in Asia
[5] MAS Singapore - Deposit Insurance Overview