Thu | Nov 15, 2018

Deposit insurance limit adequate

Published:Tuesday | June 9, 2015 | 11:05 PM


In response to the letter titled 'Why not raise deposit insurance limit?', published on Saturday, June 6, 2015 essentially querying why the deposit insurance coverage limit of $600,000 has not been raised since July 2007, the Jamaica Deposit Insurance Corporation (JDIC) wishes to highlight some of the factors that inform its determination of an appropriate deposit insurance coverage limit.

The international benchmark standard for deposit insurance coverage requires that between 80 and 90 percent of depositors be covered by deposit insurance. As at December 2014, the percentage of deposit accounts within the Jamaican banking system that are fully covered at the $600,000 coverage limit was 96.8 per cent. This means that the vast majority of depositors are covered at the $600,000 limit. Also, as at December 2014, the average deposit account balance in the banking system was $146,510, another indication that the $600,000 coverage remains adequate.

There are other factors considered by deposit insurers in setting an appropriate coverage limit. These include: the coverage limit should be about two times per-capita GDP and the deposit insurance scheme should be designed to take into account the mitigation of moral hazard.

Neither the depositor nor the financial institution should be incentivised to higher risk-taking because there is deposit insurance.

With due consideration to these factors, the JDIC conducts an annual review of the deposit insurance coverage limit to ensure it remains credible and the vast amount of depositors are protected.

The insurance of deposits within the banking system is one of the mechanisms used globally to help foster financial system confidence and stability. In this regard, the JDIC automatically provides protection to depositors that maintain accounts in deposit-taking financial institutions licensed and supervised by the Bank of Jamaica, these being commercial banks, building societies and merchant banks.


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