Deposit insurer bats for bigger budget, specialised talent
Deposit insurer, the Jamaica Deposit Insurance Corporation, JDIC, says it is delivering on its mandate as a watchdog over the financial sector on behalf of depositors and creditors, with insufficient funding particularly to attract and keep the specialised staff it needs.
“We have made a proposal to the Ministry (of Finance and the Public Service) for improved compensation, and we expect it to be considered as part of the overall public sector compensation review that the Government is undertaking,” CEO Antoinette McKain said in responding to questions about the adequacy of its $350 million budget in an interview with the Financial Gleaner.
She notes that the agency, set up in 1998 to ensure the recovery of depositors’ money should banks and building societies fail, has had a challenge putting the lid on a rapid turnover of its most skilled staff because salary rates are uncompetitive by private sector and even public sector standards.
Some of JDIC’s former technical staffers have migrated to Canada, which McKain suggests, has been a leading jurisdiction for banking supervision and regulation.
A wide range of skills are needed to carry out the JDIC functions of monitoring and risk assessment, wind-up and non-wind-up resolution of troubled financial institutions, management of the deposit insurance fund, DIF, and corporate communications. The JDIC submission to the finance ministry also seeks approval for a new staff structure and the filling of new posts.
McKain explains: “For succession purposes … we want to shore up talent for resolution of stressed banks, purchase and assumption, bridge bank creation, temporary public ownership and management. These are new from the standard-setting authorities post the global crisis but are very difficult to implement, so we want to ensure that we have technical capacity. It is going to be a BOJ (Bank of Jamaica) function per se, but the JDIC is going to be almost like an agent of the BOJ in that regard.”
With the world economy appearing headed for another recession in the wake of the COVID-19 pandemic, deposit protection and the resolution of stressed banks and quasi banks have come under the microscope.
“COVID-19 is shutting down some economies. Financial stability is going to be at risk. A crisis can come from anywhere. Banks will have to rewrite loans as people can’t produce to pay the loans,” the JDIC head commented on the unfolding global economic impact of the growing pandemic.
She adds that with issues such as climate risk, the financial regulatory framework requires both experienced technical people as well as professional with new thoughts.
“The JDIC is what FINSAC should have been. FINSAC was built out of chaos. With the JDIC, (bank regulators) are able to work through things before the event, and have a fund that can assist,” she referenced Government’s response to the financial meltdown of 1990s that cost the country upwards of 40 per cent of GDP to bring the situation under control.
In Jamaica, there has been no payout from the $20 billion DIF since it was set up by the law that also established the JDIC to manage the fund. However, that does not mean an absence of liquidity stress among financial institutions. McKain says since 1998 at least two stressed banks were taken over by others, eliminating the need for winding up or other measures to trigger a payout.
“A couple of institutions that were stressed were dealt with in a market way, which is good. Institutions are always going to be stressed but if the market can manage it, that’s the best way to deal with things like that,” the JDIC CEO says.
She notes, however, that such consolidation carries its own risks, on which the JDIC must at all times keep its focus.
“Since 1998 there were two financial institutions that needed to be strengthened. What happened is that they were literally taken over by others. That is how a healthy system should operate: (stressed banks) should be encouraged to get a good, strong, sound buyer,” she said without naming the institutions.
In 2014, the Trinidadian-owned RBC Bank was acquired by Sagicor Jamaica and merged with its commercial bank Sagicor Bank. Sagicor Bank, formerly PanCaribbean Bank, had been converted from a merchant bank of the same name, which itself was the result of the merger of Manufacturers Sigma Merchant Bank and Pan Caribbean Financial Services.
In December 2016, investment holding company Cornerstone United Holdings Jamaica Limited acquired 80 per cent of MF&G Trust & Finance and upped its stake to 100 per cent in February last year.
McKain notes that in addition to staffing, there is also a significant spend on communication and public education.
“That’s where the rubber meets the road for a lot of people. The financial system is what people believe. A run on a bank can cripple a good bank and feeling good about a bad bank can give it time to sort itself out,” she said.
The Deposit Insurance Act provides that the JDIC pays depositors in participating financial institutions up to the prescribed coverage limit of up $600,000 for each deposit account held. The institutions whose deposits are covered under the scheme are Citibank NA Jamaica Branch, First Global Bank, FirstCaribbean International Bank Jamaica, JMMB Bank Jamaica, JN Bank, Sagicor Bank, National Commercial Bank Jamaica, Bank of Nova Scotia Jamaica, Scotia Jamaica Building Society, Victoria Mutual Building Society and Cornerstone Trust and Merchant Bank.