Dear Editor,

We refer to a letter entitled ‘BOJ should stop chasing coins!’, published in the

Jamaica Observer on Tuesday, May 30, 2017. In the last paragraph the author raised some issues relating to the Jamaica Deposit Insurance Corporation’s (JDIC) deposit insurance coverage limit and the financial institutions and products covered under the Deposit Insurance Scheme (the Scheme).The JDIC thanks the author for his observations and is pleased to have the opportunity to make the following comments in response:

Deposit Insurance Coverage Limit – The JDIC conducts annual reviews of the deposit insurance coverage limit to determine that it remains credible. This determination is based on analysis of: the levels of deposits in accounts within the banking system; the performance of key variables within the economy; and international benchmark standards and practices.Importantly, the analysis also seeks to balance the coverage limit with ensuring that the limit does not serve to increase moral hazard, by either causing depositors to be less vigilant in terms of how their bank performs or that bankers do not take inordinate risks because of the level of guarantee given under the Deposit Insurance Scheme operated by Government.Currently the coverage limit of $600,000 covers approximately 96 per cent of deposit accounts within the banking system. An international best practice recommendation for deposit insurers is to cover not less than 90 – 95 per cent of deposit accounts within the system.Note is taken of another international benchmark which recommends that deposit insurance coverage should be 2 to 3 times the Gross Domestic Product (GDP) per capita. Neither of these benchmarks are adopted on their own, without consideration given to, inter alia, the other factors mentioned above.

Financial Institutions and Products Covered under the Deposit Insurance Scheme – The author suggested that the JDIC’s mandate should be expanded to include insuring (covering) other types of financial institutions and products under the Scheme. In keeping with its governing law, the Deposit Insurance Act 1998, the JDIC now insures only those financial institutions regulated by the Bank of Jamaica.Presently these institutions are commercial banks, merchant banks and building societies. The deposit products covered under the Scheme are those offered by these insured institutions and include: savings and chequing accounts; time deposits; manager’s cheques; and in the case of building societies, share accounts. Additionally, with the impending passage of law to bring credit unions under the supervision of the Bank of Jamaica, they will be required to apply to the JDIC for deposit insurance.Further, as the GOJ and regulatory authorities continue to implement measures to strengthen the financial system, consideration is being given to the development of compensation schemes to protect the customers of the financial institutions that offer investment, insurance and pension products.Additionally, the Ministry of Finance, the Bank of Jamaica, the Financial Services Commission and the JDIC recently issued a Consultation Paper ‘Proposals for the Establishment of a Special Resolution Regime for Financial Institutions in Jamaica’, which is likely to have implications for the expansion of the JDIC’s mandate to include protection for non-deposit taking financial institutions. 

Jamaica Deposit Insurance

Corporation

jdic@jdic.org