The Hong Kong Association of Banks yesterday reiterated its stance against the idea of a deposit insurance scheme put forward by the Government last week. Chairman Mervyn Davies said the association was opposed to the proposal because it would carry costs that would ultimately be passed on to depositors. The scheme, which would compensate depositors for losses resulting from any banks participating in it, would discourage depositors from assessing the relative strength of banks before choosing one. 'Banks would not be rewarded for their prudence under the scheme,' he said, adding that depositors were already given enough protection under the existing Companies Ordinance. The Companies (Amendments) Ordinance 1995 contains a few subsections that give preference to amounts on deposits with an insolvent bank up to a maximum aggregate of $100,000 for each depositor, regardless of how many accounts a depositor has with the bank. Mr Davies said the merits of such a scheme in the United States, for example, were in doubt considering the low level of citizen savings there because of the high cost involved. The 'against' position espoused by Mr Davies, however, has apparently not been arrived at after talks between all member banks. Mr Davies said the position was established several years ago but the association planned to discuss the issue with members in coming weeks. He expected more discussion about the issue in coming months because of the notable differences in opinion on it between big banks, small banks and the Hong Kong Monetary Authority. Mr Davies said the association agreed with the authority's proposal to raise the minimum capital adequacy requirement for banks because the move would help demonstrate how well-regulated and well-capitalised SAR banks were.