The government on Thursday tabled the Deposit Insurance Bill 2018 which could see coverage for bank account holders up to $2m dollars.
Over the years several banking institutions have faced difficulties and have left depositors in the lurch, most notably Globe Trust.
The explanatory memorandum of the bill notes that deposit insurance is one of the components of the financial sector safety net, alongside supervision and emergency liquidity assistance. It said that the Bill seeks to address the “inherent instability of maturity transformation in the banking sector, that is, the financing of long-term assets through the issuance of demand or short-dated deposits, which makes banks vulnerable to depositor runs and to contagion from less sound institutions. The advent of deposit insurance has proven to prevent major banking crises the world over and plays a central role in maintaining financial stability”.
Clauses 26 to 36 seek to provide that funding for the proposed Deposit Insurance Scheme is provided on an ex-ante basis (which is based on the forecasted need for funding as opposed to the actual need for funding) there giving the Corporation immediate access to the necessary resources to reimburse depositors right away.
