The government-appointed Hong Kong Deposit Protection Board wants the power to make spot checks on banks in the wake of the Lehman Brothers minibond scandal. The proposal is included in the second stage of a consultation about to be launched by the board. Chief executive Raymond Li Ling-cheng said the increased enforcement power would enable the agency to see if banks had made proper representations to customers about whether or not their money was covered by the deposit protection scheme. 'Our staff could test the banks' sale process without telling them in advance,' Mr Li said. At present, the board can only ask banks to provide information but has no right to make on-site examinations. Mr Li said the change was necessary, particularly after the minibonds case. The Hong Kong Monetary Authority has received more than 20,000 complaints about staff at 20 banks mis-selling products, including those that were touted as alternatives to time deposits but turned out to be risky credit-linked notes. About HK$20 billion worth of the Lehman products were bought by 48,000 Hong Kong investors. They became worthless when the United States lender went bankrupt in September last year. Mr Li said the second consultation would include a proposal to give the board enhanced payout powers in the event of a bank collapse. This would enable it to pay a fixed sum to customers with a very small deposit balance instead of on a pro-rata basis. Meanwhile, the board's first consultation on proposals that included lifting the deposit protection ceiling to HK$500,000 from HK$100,000 and widening the scope to cover secured deposits, had received responses from more than 500 individuals and institutions such as the Hong Kong Association of Banks (HKAB). 'Most of the responses are positive,' Mr Li said. However, the HKAB expressed reservations about the increase in premiums needed to pay for raising the deposit protection ceiling, asking the board to cut the rate by more than 70 per cent instead of the proposed 50 per cent. The board had suggested cutting the average premium rate for protected deposits to 4 basis points from 8 basis points, which would mean extending the contribution period to 2016 to achieve a target fund size of HK$2.8 billion, against HK$1.5 billion by 2012 at the current rate. The HKAB suggested a cut to between 2 and 2.4 basis points to avoid having to shift costs on to customers. Mr Li said there was some discrepancy over the research figures used for the premium calculation and the board would hold talks with the HKAB to look for ways of resolving the issue. It is hoped the proposals for the revised deposit protection scheme will be completed this second half of the year and be presented to the Legislative Council early next year.