Deposit Insurance Bill gets unanimous vote
─ It will give gov’t a leeway to establish a Deposit Insurance Fund
─ Fund will allow depositors to be reimbursed maximum $2M within 30 days of a financial institutions’ insolvency.
DPI, Guyana, Saturday, July 14, 2018
The successful passage of the Deposit Insurance Bill in the National Assembly last evening has given the government a leeway to establish a Deposit Insurance Fund to reimburse small depositors in the event of the collapse of any one financial institution.
With more than two-thirds of member countries under the International Monetary Fund (IMF) having experienced the insolvency of at least one bank, Minister of Finance Winston Jordan said it was imperative that Guyana move in this direction to safeguard the financial well being of its people.
Addressing the National Assembly last evening Minister Jordan reminded that Guyana had gone through such a
terror a decade ago, when the Trinidad and Tobago Colonial Life Insurance Company (CLICO) went into liquidation, leaving thousands of Guyanese penniless. He said having such a scheme at that time, would have been significantly helpful.
“Had the scheme been in place 14 years ago, almost all of the depositors of the globe trust would have been reimbursed by now. It is a failure of the system but it this government that is seeking to correct that in the event that such an unlikely event occurs down the road,” Minister Jordan told the House.
Minster Jordan said such crises have occurred in countries at every economic level.
“The inherent fragility of banks has motivated more than 50 percent of countries around the world to establish Deposit Insurance Schemes,” he said. The importance of the schemes, he reiterated, is to assure depositors that their funds are safe and are guaranteed that they can always be withdrawn at full value.
The Depositor Fund will allow depositors to be reimbursed by the maximum $2million dollars within 30 days of a financial institutions’ insolvency.
According to Minister Jordan, with the Deposit Insurance Scheme will minimize any likelihood of bank runs and protect small depositors from losses.
The explanatory memorandum of the bill notes that Deposit Insurance is one of the components of the financial sector safety net, alongside supervision and emergency liquidity assistance. It said that the Bill seeks to address the “inherent instability of maturity transformation in the banking sector, that is, the financing of long-term assets through the issuance of demand or short-dated deposits, which makes banks vulnerable to depositor runs and to contagion from less-sound institutions. The advent of deposit insurance has proven to prevent major banking crises the world over and plays a central role in maintaining financial stability”.
Image: Keno George