Actually, I do not think it is a prudent move for banks to insure 100% of deposits.
Firstly, it will bring about a huge influx of cash into Singapore from other countries. Singapore banks will be seen as safe heavens for cash. This would ultimately increase demand for Singapore dollar and Singapore exports will suffer. GDP will go down even more as we lose our competitiveness. Do not forget Singapore is an export oriented economy.
Secondly, it will discourage people to invest. Many would believe money in the bank is even safer than keeping it under the pillow since it is 100% guaranteed. This does not bode well for the local equities market and for risk adverse investors. Remember, your deposits will definitely be eroded by inflation, slowly but surely.
Thirdly, it is not cost effective. The depositors will ultimately pay for the insurance. It may be in the form of service charges, lesser interest or just an insurance fee.
Fourth, it might encourage irresponsible lending since the risk of defaulting on its bank deposits is borne by third party. Imagine that I borrow money from A and if I do not pay A, B (insurer) will have to pay. Would I exercise necessary prudence to return money to A? Am 1 less likely or more likely to take on more risk? Answer is clear.
Lastly, we are already compensated to deposit money in the bank through the interest payable to us. The risk of default is small, which explains the low interest rate on our deposits in the first place!
I feel that bank should offer an optional insurance scheme to those who wants to seek a 100% guarantee on his/her deposits. The premium can be 0.1% (per annum) of amount insured. This would save all the debate going on. Of course the insurer can be anyone but the bank itself!