PERHAPS the proposal to bring in deposit insurance was doomed from the start. With the major banks ranged against it, the proposal was reduced to little more than a public relations exercise in the wake of the BCC (HK) collapse. It had strong public support and the backing of experts including former Banking Commissioner Mr Robert Fell. Even the Financial Secretary, Mr Hamish Macleod, appeared to favour deposit insurance but, at the end of the day, the Government was not prepared for a showdown with the banks on the issue. What is now suggested in its place is to give small depositors priority in a bank liquidation. At present bank depositors come low down the list of creditors. First come the liquidators, then preferential creditors, staff and Government (and that includes the tax man). Only after these receive their money, can a payout be made to depositors. Reshuffling the order of creditors is a welcome move - in fact, it is an idea Sunday Money suggested a year ago, at the height of the deposit insurance debate - but it has to be stressed that it is a second-best solution. It has advantages in that it is a system that is inexpensive to operate with no need for a complicated insurance system, the burden of which would be passed on to the customer. But there is a long battle ahead before company law is amended to include new provisions for depositors. A number of legal hurdles have to be cleared. If bank depositors are to be moved up the list of creditors, others will be displaced. In addition, the Government envisages a scheme that would pay back depositors with up to $200,000 in the bank. That raises the question: what happens to large customers? The biggest drawback is that, unlike deposit insurance, changing the priority of creditors does not guarantee a payout. Deposit insurance might guarantee a 90 per cent or 80 per cent payout. But in the event of a bank liquidation, no matter how high up the pecking order of creditors are depositors, if there is no money left in the bank then they get nothing. THE suggestion that the budget of the Monetary Authority be kept under wraps is not the best of starts for the new organisation. Mr Joseph Yam Chi-kwong, who will head the new authority, argues that the budget process needs to be secret in order to give the territory's de facto central bank greater flexibility and the power to pay salaries in line with the private sector. He states that although he does not mind disclosing figures, he wouldn't want this to undermine the authority's financial autonomy. In practise this could mean the authority publishes an annual report but that its spending is not subject to discussion and approval by the Legislative Council. Instead it would come under the ambit of the Financial Secretary and a new advisory committee. Mr Yam's approach is clearly not in keeping with a trend toward more open government in the territory. What is at issue here is accountability. An organisation in a similar position - in being quasi-independent - is the Securities and Futures Commission (SFC) whose budget is open to scrutiny. There have at times been some well-publicised debates on the SFC's spending but this has not detracted from its effectiveness or its ability to attract the right people for the job. If the Monetary Authority is in a special position, Mr Yam is welcome to explain the case but it will have to be an extremely strong argument. An organisation that is largely funded from the public purse should be directly accountable to the public's representatives in Legco.