The Jamaica Deposit Insurance Corporation (JDIC) has indicated that, while it provides coverage for accounts denominated in US dollars in the event a financial entity goes under with those deposits, repayments will be done in Jamaican dollars.

The JDIC insures local savings through the Deposit Insurance Fund (DIF) in 11 deposit-taking institutions under the Deposit Insurance Act. The insurer notes that, at September 30, 2021, the Deposit Insurance Fund balance was $29.57 billion (unaudited).

The company has stated that, “The maximum coverage limit of $1.2 million is applicable to all deposit accounts that qualify for deposit insurance coverage, whether they are held in local or foreign currency. Further, where an insured member institution fails and resolution is by way of a payout, depositors will be reimbursed in Jamaica dollars.”

At last report, US dollar accounts climbed by double digits in value in 2020, outpacing local deposits.

The Bank of Jamaica (BOJ) indicated in its annual report for that period that the out-turn for 2020 reflected an increase of 18.4 per cent ($81.9 billion) in the Jamaica dollar equivalent of foreign currency deposits and growth of 15.8 per cent ($114.2 billion) in domestic currency accounts.

The substantial growth in deposits primarily mirrored the increased inflows into accounts held by local individuals, non-deposit taking financial institutions, and overseas residents, the BOJ stated.

The deposit insurance coverage limit (coverage limit) was increased to $1,200,000 from $600,000 on August 31, 2020, with Dawn Marie Brown,director, Monitoring and Risk Assessment stating that the corporation “periodically reviews the coverage limit to ensure that it protects the vast majority of depositors and is consistent with its public policy objectives, thereby promoting financial system confidence and stability”.

For all account types (USD and Jamaican) the decision to double coverage was based on key considerations, including decline in the real value of the coverage limit due to inflation and impact of exchange rates over the years between the last increase in 2007 and the August 31, 2020 increase and the type of deposit accounts and the distribution of these deposits to ensure that the vast majority of deposit accounts are covered.

Brown states that the approach is also consistent with the benchmark recommendations of protecting upwards of 90-95 per cent of accounts in the banking system jurisdiction.

The monitoring and risk assessment director stated that, at the current coverage limit, “the JDIC is fully covering approximately 97 per cent of the number of deposit accounts in the banking system”.

Brown outlined that, as at December 2020, there were approximately 4.7 million deposit accounts across the 11 regulated deposit-taking institutions (eight commercial banks, one merchant bank, and two building societies) covered under the Deposit Insurance Scheme.

Of this amount, 4.5 million accounts had balances of $1.2 million or below. Brown stated, “Of note, the average balance in a deposit account is approximately $285, 561.00.

The JDIC was established in 1998 under the Deposit Insurance Act (DIA), and will mark its 24th year of operations on August 31, 2022.

Since establishment no member institution has failed, and hence there has been no need to reimburse depositors or apply any other resolution strategy.

The director notes that the JDIC does not have reinsurance, consistent with the practice of deposit insurance organisations in other jurisdictions. Deposit insurance premiums are paid by the member institutions on an annual basis, in accordance with the provisions in the DIA. For the JDIC, this is calculated on the total insurable deposits on their books as at December 31 of each year and verified by their external auditors.

All member institutions currently pay annual premiums at a rate of 15 basis points, effective since August 2002 (prior to this it was 10 basis points). Additionally, the corporation monitors the performance of member institutions on an ongoing basis to determine any potential risk to the DIF and need for liquidity.

On September 30, 2021 the Deposit Insurance Fund balance was $29,596,358,000.00 (unaudited). The DIF is primarily made of premiums, investment income, and sale of assets.

The JDIC indicates that it also has the power to establish prearranged emergency funding with the Government, the central bank, or borrow from the market for liquidity or emergency funding access, should this be necessary.

Brown stated, “This is also consistent with the practices of other deposit insurers globally and international best practices as recommended by the IADI [International Association of Deposit Insurers].”