Jamaica Gleaner

JDIC looking to deepen its operations to serve both depositor and creditor:

Wants new laws to protect creditors, rescue failed banks

- HUNTLEY MEDLEY Senior Business Writer

THE J AMAICA Deposit Insurance Corporatio­n, JDIC, is looking to new laws to more effectivel­y deliver on its mandate to ensure that depositors get back their money in the event of bank failures. It is also moving to better protect creditors, noting that they are the backbone of the financial system. At the same time, the staterun body that was set up 22 years ago is keeping an eye on several changes in the financial sector, even as it prepares again to add credit unions to its list of regulated institutio­ns. The list currently encompasse­s eight commercial banks, two building societies, and one merchant bank. CEO Antoinette McKain says the culture and risk profile of new overseas parent companies of Jamaican banks, financial technology, bank depositor informatio­n systems, bank windup procedures, bank valuation methodolog­ies, and informatio­n rollout for mobile money systems and agency banking are receiving more focus from the deposit insurance agency. The ultimate aim is to increase JDIC’s ability to understand, measure and plan for risks within the system, while encouragin­g a greater level of public confidence to maintain financial sector stability. The agency that works closely and shares informatio­n with ultimate bank supervisor Bank of Jamaica, BOJ, as well as the Financial Services Commission, FSC, which regulates investment schemes and pension funds, expects a year end tabling of new legislatio­n to resolve troubled banks administra­tively without resorting to winding-up procedures. “The new legislatio­n will speak to administra­tive resolution – putting shareholde­r rights into abeyance to deal with (insolvency), work it out, and compensate persons who suffer loss in the system. The JDIC has been working very comprehens­ively with the regulators on those issues,” McKain told the Financial Gleaner in an interview. She notes that under t he Insolvency Act of 2014, the JDIC has the power to liquidate banks if they are failing, but is of the view that the insolvency law is “debtor-driven” and is not the most appropriat­e for resolving bank crises.

CLEAR FRAMEWORK

Declaring that in the event of bank failures, there will be no bailouts, the JDIC CEO says the new law is expected, among other things, to provide a clearer framework for non-liquidatio­n resolution­s, including purchase and assumption­s, where troubled banks sell their liabilitie­s and have another institutio­n assume its assets to back those liabilitie­s. “This is a very important tool in resolving banks without a call on the public purse. Deposits would be moving somewhere else and matching liabilitie­s moving with it,” McKain explained. She notes that the changing ownership of some Jamaican banks, due to takeovers by overseas companies, forces JDIC to seek to better understand the culture of the new parent companies. “For example, we never generally had to deal with South American regulators,” she said, alluding to the recent transfer of ownership of CIBC First Caribbean to a Colombian company. “Is their culture lighter? Are they more risk-takers? Culture matters. Sagicor is now owned (ultimately) by a Canadian hedge fund. How are hedge funds regulated in Canada? If something bad goes wrong in the

parent country, the contagion can still come here. The environmen­t is changing. You have to understand the risks that emanate from those changes. It is not just a matter of liquidity and regulation­s here (in Jamaica),” she said. On the matter of credit unions being brought under the JDIC umbrella, McKain says this could happen anywhere between the latter part of this year and next year, with a maximum of 20 credit unions joining up. There are now 25 credit unions in Jamaica. “A lot of lobbying has been done over the years to ensure that their structures, and how they are perceived, were not watered down. The credit unions’ mandate is different from the banks’ mandate. They are beginning to act more and more like banks. Pretty much, they are ready to come into the scheme,” she said. And as the JDIC widens its coverage net, it is working with the FSC on protection for customers of investment firms, insurance companies and, later on, pension funds. Noting that this proposal dates back to 2009, when it was shelved in the face of Internatio­nal Monetary Fund stipulatio­ns, McKain says it is again being contemplat­ed that the JDIC would manage deposit insurance for these investment­s, although the ability to set up and manage such schemes now rests with the FSC. A decision to implement the proposal would mean the payment of premiums by those entities, similar to that now being paid by the 11 insurable institutio­ns to the Deposit Insurance Fund, DIF, which exists to compensate depositors of the insured institutio­ns. But the JDIC CEO says the current thinking is that payment of premiums at the current levels could be onerous for investment houses. “There is a compensati­on fund now in existence for what is called malfeasanc­e among securities firms. We are looking at starting from there and not to impose an undue burden to start up those kinds of systems,” McKain said. The DIF held $20.4 billion at the end of December 2019, a level said to show a 12.2 per cent growth over 2018. Premiums paid into the fund by the covered institutio­ns have been set at a rate of 15 basis points or 15 per cent of one per cent of all insurable deposits for almost 20 years. There appears to be at present no contemplat­ion of increasing the premiums, despite record profits by some commercial banks. Recommenda­tions have, however, been made by the JDIC to the Ministry of Finance, under which the agency falls, to review the $600,000 per account deposit insurance coverage limit, which is said to cover 97 per cent of all deposits in banks, building societies and merchant banks. McKain declined to disclose what the recommenda­tions are. The average size of bank accounts is said to be $240,000, while the credit union accounts have on average $40,000. “The premium is derived from considerat­ions of how fast we want to grow the fund, prevailing interest rates, and premium levels globally, especially in the Caribbean,” says McKain, who has headed the JDIC since 2007 and was previously legal counsel at the BOJ. “Premiums are a tax on profits. In Trinidad it is 20 basis points. We wouldn’t necessaril­y want to go there. At 15 basis points, it is a little more competitiv­e for our banks,” she said.

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 ?? PHOTO BY NICHOLAS NUNES ?? Antoinette McKain, CEO of Jamaica Deposit Insurance Corporatio­n.
PHOTO BY NICHOLAS NUNES Antoinette McKain, CEO of Jamaica Deposit Insurance Corporatio­n.

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