A long-promised system of deposit insurance is slated to launch during the third quarter of this year, Premier Dr. Natalio “Sowande” Wheatley said while introducing the Virgin Islands Deposit Insurance (Amendment) Act during a House of Assembly meeting last Thursday.
The law — which passed the same day — is the latest of several recent legislative tweaks designed to lay the groundwork for a system that legislators said will protect bank customers’ deposits up to $100,000.
“It’s also anticipated that the establishment of this last component of the financial safety net would likely encourage an increase in deposit-taking business in the territory as the [VI] would now have a viable protection mechanism that takes the sole implicit responsibility guarantee from the government,” Dr. Wheatley said.
An initial insurance fund of $4 million has been guaranteed by the government, and more money will be funded by annual premiums paid by banks, according to the premier.
Besides protecting depositors, he added, the system will also help government deal with “problem financial institutions” with a “faster and more consistent administrative and resolution process.”
“We are operating in a global environment, and if the [VI] is to remain competitive, our banking institutions must adopt this practice and keep pace,” he said. “We have been [getting by on] faith and through the rigorous oversight of the Financial Services Commission to secure our deposits. Such ideology and practice are no longer sufficient in the 21st Century.”
Historically, the territory’s banks have not offered deposit protection to their customers, according to the premier. But efforts to change that have been in the works for more than five years.
In 2016, the HOA passed the VI Deposit Insurance Act, which mandated the establishment of the VI Deposit Insurance Corporation and the VI Deposit Insurance Fund to protect small depositors from losing their savings in the event of a bank failure via a regime similar to ones that exist in many other countries.
Since the passage of the act, the Ministry of Finance has worked on subsidiary legislation to support it, including creating a legal and resolution framework.
The Financial Services Commission Act, for instance, was amended to enable the FSC to conduct resolution proceedings against banks and other institutions in financial distress and to appoint a “rehabilitator” to direct the affairs of a struggling bank.
During last Thursday’s HOA meeting, Deputy Premier Kye Rymer said that banks will contribute 0.002 percent of their overall revenue, which will amount to nearly $2 million annually across seven banks.
“We hope to see this fund increase,” he said. “Your deposit up to $100,000 should be covered, and that should be one of the highest in the Caribbean.”