JIDC raises the limit on deposit insurance

INSURANCE COVERAGE on individual accounts in deposit-taking institutions licensed by the Bank of Jamaica (BoJ) have been increased to a maximum of $300,000, as of July 1, in keeping with a directive announced by Finance and Planning Minister Dr. Omar Davies earlier this year.

Coverage is provided by the Jamaica Deposit Insurance Corporation (JIDC), a regulatory body established by the Government following the collapse of the financial sector in the mid-1990s and which came into existence in August 1998.

The JDIC, before now, had provided coverage of up to $200,000 on each account in a licensed deposit-taking institution, but Dr. Davies, during his Budget presentation in Parliament on April 11, announced that the ceiling would be lifted to $300,000.

This means that if for one reason or another a licensed financial institution becomes insolvent or is forced to close, depositors will be able to retrieve at least that portion of their deposits which has been covered by insurance.

During his Budget presentation, Dr. Davies also said he has indicated to the board and management of the JDIC the necessity for greater public awareness of the institution, the level of the coverage provided, and that the implied blanket 100 per cent coverage demonstrated during the intervention of the Financial Sector Adjustment Company (FINSAC) no longer existed.

Chief executive officer of the JDIC, Winston Carr, told the Financial Gleaner that the decision to increase the coverage of deposits was based on a commitment given to the public that from time to time it would be reviewed. He said the JDIC felt it was time to review the coverage in light of movements in the inflation and foreign exchange rates, as well as complaints from depositors that the $200,000 coverage was too small.

Mr. Carr said the $300,000 coverage now protects about 97 per cent of all accounts, up from about 95 per cent under the old regime, and that represents about 40 per cent of total savings, up from just over 30 per cent.

The JDIC was one of the institutional mechanisms the Government put in place following the fallout in the financial sector, with the objective of preventing a recurrence of the problems. Under the scheme, licensed deposit-taking institutions are required to pay premiums to the JDIC to ensure coverage of their deposits, in the same way that individuals would pay premiums for specific insurance coverage.

Although governments ostensibly act as implicit providers of deposit insurance, in many cases they have established explicit deposit insurance schemes following banking failures or crises, and those schemes are usually designed primarily to reduce bank runs, which might otherwise precipitate contagion and crises in a country's payment system.

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