Hughlette Jackson (second left), Jamaica Deposit Insurance Corporation (JDIC) director of insurance risk assessment, gestures during a discussion with JDIC CEO Antoinette McKain (right); Ronald Edwards (left), JDIC director of finance and corporate services; and Trevor Fearon, a director at EastWestConsult. Occasion was yesterday's news conference in Kingston called by JDIC to commemorate International Week of Deposit Insurance. (Photo: Lionel Rookwood)

The 100 per cent increase in insurance coverage that customers at commercial banks, merchant banks and building societies will receive on their accounts at the beginning of July is expected to continue the process of restoring depositor confidence which was marred by the mid-1990s meltdown in the Jamaican financial sector, according to Antoinette McKain, CEO of the Jamaica Deposit Insurance Corporation (JDIC).

First announced in Parliament by Finance Minister Dr Omar Davies during the recent Budget Debate, the limit for deposit insurance coverage at commercial banks, merchant banks, and building societies will move to $600,000 from $300,000.

McKain said that the robust increase in coverage was implemented in order to restore real value of protection to depositors as well as to maintain its effectiveness, in light of fluctuating macroeconomic variables over the medium term.

McKain, who was speaking at a JDIC press briefing yesterday to commemorate International Week of Deposit Insurance, said that at $600,000, approximately 98 per cent of the number of accounts in banks and building societies will be fully covered, representing 36 per cent of the total dollar value. This, she said, is almost in line with international standards in which 90 per cent of the total number of accounts are covered, representing 40 per cent of the total dollar value.

"These increases overtime have really been to return the (real) value of the coverage in the interest of depositor protection and in accordance with international standards" said McKain.

The JDIC was established in 1998 after the financial crisis saw the collapse of a number of financial institutions and the subsequent loss of billions of dollars in customer deposits.
The organisation was set up to mandate a system of guaranteed recovery under a deposit insurance scheme and to renew depositor confidence in the ailing sector. The coverage limit was $200,000 when the scheme was set up in 1998. It was increased to $300,000 in 2001.

McKain, though not providing any quantitative evidence that depositor confidence has increased since the implementation of the insurance scheme, supported this assessment by pointing to international experiences as well as JDIC-sponsored surveys.

"Experiences of other organisations in the world indicate that depositors do feel more confidence when there are depository insurance schemes in place and in fact, we have done public awareness surveys which have shown overtime that there has been some increase of depositor confidence with the advent of deposit insurance in Jamaica," she said.

The strengthened coverage to depositors was enhanced by the rapid growth of the Deposit Insurance Fund, which increased from $183.5 million at the end of its first full year in operation to $3.1 billion at the end of March 2007.

Against this backdrop, McKain added that the fund's resources were seen as adequate at this time, thus allowing the corporation to increase coverage limit without increasing the premium assessment rate charged to the insured financial institutions, which currently pay premiums at 15 per cent of total insurable deposits.

"We didn't think it was necessary to increase the premium rate paid by financial institutions at this time," McKain told the Business Observer after the briefing. "In assessing the depository insurance funds we look at the risk profile of the institutions, and having made that analysis, we didn't think it was necessary."

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