The Deposit Insurance Act (the Act) makes provisions for the following:
The definition of 'deposit'
The definition is similar to that in the ‘Banking Services Act’ and includes interest payable on the sum of money deposited. ‘Insurable deposit’ is defined as total deposits less interbank and Government deposits, while ‘Insured deposit’ is that portion of an insurable deposit that is covered by the Scheme.
The establishment of an independent statutory body, i.e. the Jamaica Deposit Insurance Corporation (JDIC)
JDIC’s main objectives are to establish and manage the Deposit Insurance Scheme to facilitate the insurance of deposits or parts thereof against the risk of loss.
Establishment of a Deposit Insurance Fund (DIF)
The Fund will be financed by initial and annual premiums from Policyholders, sums borrowed by the Corporation and proceeds from investments. The Act stipulates that the total value of insurable deposits should be used as the premium assessment base. The main charges against the Fund are expected to be in the form of payments to depositors when a Policyholder fails. The resources of the Fund must be conservatively invested, that is, in assets that have relatively little risk and are fairly liquid.
The granting of certain powers to the Corporation
These include powers to manage and administer the DIF; levy premiums for the Fund; make inquiries of a Policyholder as to the conduct of its affairs and to act as receiver or liquidator of any Policyholder; make loans or advances with security; borrow or raise funds; guarantee, indemnify or become liable for the payment of any obligation thereof. The Corporation may also arrange for the restructuring of a Policyholder by way of a merger or sale to another financial institution.
All applicable institutions are required to apply for and be issued a Policy of Deposit Insurance. In other words, the Scheme will be compulsory for all deposit-taking financial institutions supervised by the Bank of Jamaica. The Act stipulates that any financial institution that carries on the business of accepting deposits without a Policy of Deposit Insurance commits an offense and shall be required to pay a fine not exceeding J$3m after conviction in a RM’s Court.
Relationship with the Bank of Jamaica
The Corporation will work in close collaboration with the Bank of Jamaica in order to avoid any duplication of activities and in so doing will receive copies of the Bank’s on-site examination reports, and all material information relating to the safety and financial soundness of institutions under its purview. In return, the Corporation must make available to the Bank any available information to enhance the development of sound financial practice in Jamaica.
Cancellation of Policy of Deposit Insurance
Provision is made for the cancellation of an insurance policy in certain circumstances – e.g. when the Corporation and the Bank of Jamaica are of the opinion that the Policyholder is or is about to become insolvent or when the Policyholder has ceased to accept deposits because of insolvency. However, allowance is made for the affected Policyholder to appeal to the Minister.
Deposit Insurance Coverage
Basic coverage is $1,200,000 per depositor, per ownership category in each member institution, a limit that covers over 97% of depositors in insured institutions. The categories of ownership are Individual, Joint, Company, Nominee, and Trust Accounts.
Although the $1,200,000 reflects the level of de jure protection, de facto protection may result in an extension of coverage if failures are resolved in a manner (e.g. sale/merger) that protects all depositors from loss.
Where Policyholder institutions merge and a depositor has accounts in each of the merged institutions the respective accounts will have separate deposit insurance coverage for up to two (2) years after the merger.
Payment out of the Fund in relation to Foreign Currency
In respect to an insured deposit that is in a currency other than the Jamaican currency, the equivalent amount of the foreign currency payment amount shall be calculated in Jamaica dollars in accordance with the weighted average selling rate payable by the Bank at the date on which the circumstances for the obliged payment occurred.
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