Antoinette McKain, new CEO of the Jamaica Deposit Insurance Corporation, as depected in the agency's annual report for the year 2005/06. - JDIC photo

The government has announced a doubling, to $600,000, of the cap on savings that a depositor is guaranteed to pocket under its deposit insurance scheme, if a licensed deposit-taking institution were to fail.

Dr Omar Davies, the Finance Minister, told Parliament last week that the new cap will come into effect on July 1, the outcome of a recent review of the coverage limit by the Jamaica Deposit Insurance Corporation (JDIC).

Yesterday, attempts by Wednesday Business to have the JDIC's new boss, Antoinette McKain - who was the agency's legal counsel & corporate secretary, comment on why the cap had been doubled and implications for poliyholders, were fruitless.

Calls to the Jamaica Bankers Association were not immediately returned.

The scheme is financed by premiums payable by 15 deposit taking institutions. Once the regulatory framework is agreed for the Bank of Jamaica to oversee their operations, the island's 48 credit unions will also fall under the Deposit Insurance Act, substantially increasing the complement of policyholders.

Up to November 2005, the latest published figures, policyholders were up to date on their premiums - which are calculated at 0.15 per cent of insurable deposits per institution - amounting to $421.24 million.

Problems in financial sector

The Government began working to establish the JDIC in 1995, at the first stirrings of serious problems in Jamaica's financial sector. By the time it was launched three years later, the sector was in the throes of a full meltdown, with the collapse of banks, building societies and insurance companies.

In that meltdown, the Government covered in full the principal and interest of savers in banks and building societies which went under, spending in the end over $140 billion on a rescue operation, that included cleaning up the balance sheets and restructuring companies ahead of divestment.

Initially, a depositor was covered to a maximum of $200,000 in an institution, but that limit was hiked to $300,000 in 2001 to cover 90 per cent of savers, the last increase before Davies' announcement last week.

"This coverage ($600,000) is 2.27 times per capita GDP," Davies said. "This ratio is above international standards."

Only a fraction

While this hike will be good for the many small and medium-sized savers, they hold only fraction of the more than $370 billion deposited in Jamaican financial institutions.

Large savers, who own the bulk of the deposits, in the absence of a government bailout, would find themselves out of pocket in the event of a bank collapse.

However, in recent years the Government has placed emphasis on enhancing the regulatory systems, within the central bank and with the establishment of the Financial Services Commission (FSC), hoping to avoid a repeat of the late 1990s collapse.

At the end of December2005, the Deposit Insurance Fund had topped $2.2 billion, representing 1.8 per cent of insured deposits, Winston Carr, the now retired JDIC chief executive, reported.

Carr in the agency's annual report also said the fund was nearing its 2.0 per cent to 2.5 per cent target and projected it would get there by March 2008.

business@gleanerjm.com

JDIC Policyholders/Insured Institutions

Commercial Banks:

Bank of Nova Scotia Jamaica Limited

Citibank NA

FirstCaribbean International Bank Jamaica Limited

First Global Bank Limited

National Commercial Bank Jamaica Limited

RBTT Bank of Jamaica Limited

Building Societies:

FirstCaribbean International Building Society

Jamaica National Building Society

Scotia Jamaica Building Society

Victoria Mutual Building Society

FIA Licensees:

Capital & Credit Merchant Bank Limited

Citimerchant Bank Limited

DB&G Merchant Bank Jamaica Limited

MF&G Trust & Finance

Pan Caribbean Merchant Bank