What is Deposit Insurance and Why is it Important?
The Central Bank of The Bahamas, as supervisor and regulator of the banking system has, as a key objective, the stability of the financial system. In pursuit of this objective, the Central Bank requires banks to have sound risk management and internal controls, and carries out regular reviews of these arrangements.
However, the Central Bank does not guarantee the soundness of individual banks; and, although banks in The Bahamas do not often fail, like any other business, it is possible. Therefore, a deposit insurance scheme has been devised to minimize or eliminate the risk of loss of savings of small Bahamian depositors in the event a bank fails, and to arrange for the expeditious handling of bank failures. Knowing that their deposits are protected, depositors should be less inclined to overreact to any rumors and withdraw their deposits from a bank, which could create a bank run across the system. This safety net mechanism, therefore, promotes confidence and helps to achieve the overall financial stability objective of the Central Bank.
Deposit insurance payouts are made to insured depositors only when a member institution has been closed as a result of action taken by the Central Bank.
Since its establishment, the DIC has been involved in a single bank liquidation, i.e., the Gulf Union Bank (Bahamas) Limited (Gulf Union). As at 31st December 2012, the DIC paid out approximately $6.517 million, of which $4.784 million was to depositors of Gulf Union, and $1.733 million to the Liquidators for set-offs in respect of monies owed to Gulf Union by depositors.