More protection for savers in deposit insurance law
Published:Friday | January 21, 2011 | 12:00 AM
Sabrina Gordon, Business Reporter
Jamaican lawmakers have approved changes to the Deposit Insurance Act that expand the scope for protection of depositors connected to trust accounts, and in circumstances where institutions merge.
They also voted to give the agency responsible for executing the law's provisions wider discretion in financial decisions relating to the insurance fund it oversees.
The Jamaica Deposit Insurance Corporation (JDIC) can now make direct payments to depositors in distressed banks and other deposit-taking institutions when the accounts are part of a larger portfolio governed by trustees or a nominee.
The law previously stipulated one payment to the maximum of J$600,000 on trust accounts, but with the amendments approved by the House of Representatives, JDIC can now compensate each beneficiary of the trust, subject to the J$600,000 cap per individual. The amendment also applies to nominee and other accounts in similar categories.
"Now we can recognise each beneficiary, rather than just the trustee," said Antoinette McKain, chief executive officer of JDIC, after the passage of the legislation.
The amendments will also allow separate claims for compensation if a depositor holds separate accounts in two or more institutions that are forced to merge under circumstances where they fall into trouble, closing a lacuna in the law long identified by the JDIC.
The claim period, however, will be restricted to two years after the merger.
"We have been trying to get these changes in place for a long time now," said McKain.
For operational efficiency, the changes also include fixing a rate of conversion for payouts on foreign-currency accounts.
"The method of conversion will be the weighted average BOJ rate" in effect on the last day of business for the failed bank or deposit-institution, said McKain.
"With this, we have certainty; making computation of payouts easier."
The revisions were passed in the lower House on January 12. They still have to hurdle the senate.
JDIC operates the Deposit Insurance Scheme into which deposit-taking institutions pay premiums as policyholders. The law, first enacted 13 years ago after the financial sector meltdown of the mid-1990s, protects account holders in commercial banks, trust and merchant banks, and building societies. Credit unions will be covered in the future once legislation passes for their regulation by the central bank.
McKain said 97.3 per cent of the total number of insurable accounts are covered under the scheme.
No institution that is a policyholder has been known to fail since the advent of the JDIC.
At the end of November, funds in the scheme amounted to J$7.4 billion, sufficient, McKain said, to provide for any eventuality. The rate of grow in the insurance fund has slowed with the advent of the JDX, but it continues to perform credibly, she said.
The revised law also allows JDIC to raise funds through loans or advances with security and to borrow or to raise funds, said Finance Minister Audley Shaw, according to a state information agency report.
Additionally, JDIC will be able to repay loans and advances from the insurance fund, transfer payouts to bank accounts or make payments to depositors by cheque, and invest in securities issued or guaranteed by the Bank of Jamaica.
JDIC is also now able to make loans to an institution which wants to purchase a failing institution.
No specific allocation method has been determined, but it will be based on what the fund can afford, according to McKain.