BDA Monetary Authority: Deposit Safety Net
The Bermuda Monetary Authority (BMA) published outlines of its key recommendations for establishing a Deposit Insurance Scheme (DIS) for Bermuda’s banking sector particularly designed to protect small depositors. Essentially, the scheme would offer deposit insurance for individuals, businesses, trusts, and charities that have deposits in local institutions. The proposal is to cover amounts up to $25,000; and the institutions would be those local banks that are properly licensed by the BMA.
Similar schemes operate in many other western countries. In the USA, the FDIC scheme insures deposits up to $100,000 if deposits are in federally licensed institutions.
The scheme, as proposed, would be funded by mandatory contributions (premiums) into the Scheme by all banks and deposit companies licensed under the Banks and Deposit Companies Act 1999. Compulsory participation is an internationally adopted practice that promotes comprehensive protection for depositors.
It should be noted that DIS schemes such as the one being proposed by the BMA would not protect life policy holders in companies such as the just-gone-bust British American Life Insurance Co Ltd. This is the same as in the USA.
The issue of depositor protection has received heightened attention internationally due to the significant losses some banks incurred during the global financial crisis. As a result, regulatory authorities around the world have been examining their standards with a view to strengthening their banking sectors. While Bermuda’s banking sector remained resilient overall during the crisis, and continues to be stable, introducing a DIS is a precautionary measure to provide an additional safeguard particularly for small depositors.
Jeremy Cox, CEO of the Authority said, “As Bermuda’s financial services regulator, one of our most important responsibilities is deposit-holder protection. Traditionally, we have relied on prudent and effective supervision of the banking sector, ensuring that Bermuda banks operate within strict levels of solvency and liquidity. This approach has served Bermuda well, however the challenges presented by the global financial crisis highlighted the potential enhanced protection offered by a DIS, and the benefits of having such a facility in place. The addition of a DIS in Bermuda will further strengthen the financial safety net for retail depositors in our market.”
The paper is a consultation paper: “Securing Enhanced Protection for Depositors. Proposals for Introducing Deposit Insurance in Bermuda”. It is available here [22 page PDF]
