Reserve Bank deposit insurance is good news for savers
The Reserve Bank is hoping that SA’S new deposit insurance scheme will help to drive an increase in the interest rates banks pay on deposits and enhance smaller banks’ ability to compete, at the same time as it underpins trust in the banking system.
The new scheme, which was first mooted during SA’S 2002 small-banks crisis, is designed to protect customers losing deposits if a bank fails.
The new Corporation for Deposit Insurance (Codi) will protect the deposits of individual and non-financial business customers up to R100,000.
SA’S retail banking customers have not lost money as a result of banks going bust for many decades, because the Bank and the government have stepped in with help from SA’S commercial banks to backstop depositors.
But the establishment of a formal deposit insurance system is in line with international practice.
And Reserve Bank governor Lesetja Kganyago has said that the guarantee that the scheme provided would help to prevent runs on vulnerable banks even before they began.
About 40-million South Africans hold a bank account, and Codi MD Sabihah Mohamed said bank failures were rare in SA thanks to robust prudential regulation. However, she noted: “You may recall the snaking queues of mostly elderly people, braving the cold and sleeping outside the branches of VBS Mutual Bank when it collapsed in 2018.”
Nedbank took over the accounts and safeguarded the deposits of customers of VBS, which collapsed amid allegations of severe fraud, which have yet to come to court.