Deposit insurance coming for bank clients
A deposit guarantee scheme is in the process of being constructed. It’ll be applicable to all banks operating in SA as part of broader reforms being introduced through the Financial Sector Regulation Bill (FSRB) – approved by Parliament and awaiting the president’s signature.
A process to reach agreement on the funding mechanism is being undertaken by officials at the Reserve Bank’s (Sarb’s) Financial Stability Department.
The move will clarify protection afforded to deposit holders by providing what’s called an ‘explicit guarantee’ for banking clients who might mistakenly think government will always protect their deposits in a banking crisis.
The current idea is to create a guarantee scheme or form of deposit insurance which would be applicable to all banks. It would cover deposits to a limit of R100 000 per individual, and up to R100 000 per all non-financial, non-government entities. It would be applicable to all types of accounts through an aggregate, single customer view. As such, if an individual has R50 000 in a cheque account and R50 000 in a savings account at Bank A, the entire amount up to the R100 000 threshold is covered under the scheme. The same would apply for that individual’s accounts at another bank(s).
Should a bank enter distress or be liquidated through insolvency proceedings, depositors’ money would be guaranteed.
When enacted, this would have large implications for levelling the playing field for smaller banks. A bank’s greatest asset is its depositor base – the larger it is in totality and the more it comprises small, unrelated deposits, the less risky and generally more profitable it is for the bank. A deposit base of this nature provides a great platform from which to grow a bank, so a scheme underpinning all deposits up to a certain threshold, would mean individuals could bank with a smaller bank with zero additional risk.
Should a bank enter distress or be liquidated through insolvency proceedings, depositors’ money would be guaranteed.