The Jamaica Deposit Insurance Corporation (JDIC) recently said that the build-up of funds secured to provide protection for the depositors of financial institutions under the deposit insurance scheme now totals approximately $26 billion.

Chief executive officer (CEO) of JDIC, Antoinette McKain said the fund, which has been built up over several years, is financed from the annual premiums charged to financial institutions.

“The law [states] that banks, building societies and merchant banks are to pay to the JDIC every year a premium, and that premium is based on how much deposits are being held by the bank. JDIC invests those premiums every year in safe investments and a fund is built up — this has been built up over time and that fund is actually now at $26 billion. That’s what we [will] use to pay depositors. If the fund is not enough, JDIC can borrow to supplement that fund,” she shared while speaking at digital town hall meeting.

She further noted that since the country has, fortunately, never had a bank failure since the corporation was established some 22 years ago, the fund has gotten a significant length of time to accumulate funds due to fact that funds have never had to be paid out to any depositor.

“The financial system is also regulated by the Bank of Jamaica — that’s the first line of defence for the protection of depositors. The second line of defence, which if the bank actually fails, is the JDIC – which will make payments up to the prescribed maximum limit,” McKain said.

A ministerial order, approved by both Houses of Parliament, which took effect on August 31 saw the doubling of the deposit insurance coverage limit from $600,000 to $1,200,000. Minister of Finance and the Public Service Dr Nigel Clarke, in justifying the move, said it will help to increase depositors’ confidence in deposit-taking institutions, support market discipline, and ensure continued financial system stability.

McKain informed that an increase in the fund was considered based on the level of the erosion of value [or in this case, the lack thereof] that the coverage limit has had since the last increase in 2007 when it went to $600,000. Before this the fund increased for the first time in 2001, when it moved from $200,000 to $300,000.

“We have grown our fund significantly since then and we now have what we refer to as a notional target fund – where we want that fund to be between 8-10 per cent of all the insured deposits in the banking system,” she stated.

“When we raised the limit to $1,200,000, what we realised was that we were increasing confidence in the banking system such that 97 per cent of deposit accounts are now fully covered up to the [prescribed limit],” she added, also noting that it was the steady build-up of funds that placed the entity in a good position to do so.

The fund currently guarantees automatic coverage for all depositors, once they are members of a registered financial institution [soon to include credit unions once the Act to do so has been passed], and will provide up to the maximum coverage limit per depositor per institution.

“If you have deposits in a bank or more than one, each deposit you have in that bank is covered up to the $1,200,000,” McKain said while further outlining that for joint accounts the same principle applies, only that the sum would be shared between account holders.

She said that for deposits greater than $1.2 million, the depositor may be able to recover more than the coverage amount on the liquidation of the financial institution’s assets.

The JDIC was established by the Government to protect depositors against loss. The entity said that over the years, since its inception in 1998, it has been doing tremendous work to keep the financial space safe, learning from the lessons of the financial fallout of the mid-1990s.

“In these challenging times, confidence is key to setting our minds at ease, as the future appears daunting. Having peace of mind and confidence that deposits are protected in the unlikely event of significant financial fallout gives us one less thing to worry about. The regulators have also put in place a set of very robust benchmarks, including capital and liquidity reserves requirements, to protect the depositors during challenging financial times,” commented Jerome Smalling, president of Jamaica Bankers Association (JBA) while making his contribution at the town hall meeting.