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According to IADI, as of June 2006, there are currently 118 countries with a deposit insurance system in operation, pending, planned or under serious study (i.e. 95 in operation, 11 pending, 12 planned or under serious study).
UNITED STATES
The United States was the first country to establish an official deposit insurance scheme, the Federal Deposit Insurance Corporation, during a Great Depression banking crisis in 1934.
A separate fund, the National Credit Union Share Insurance Fund (NCUSIF) administered by the National Credit Union Administration (NCUA), was created in 1970 to insure deposits at credit unions.
CANADA
Canada created its own Deposit Insurance Corporation in 1967. It is similar to the Federal Deposit Insurance Corporation in the United States. Since 1967, 43 financial institutions have failed in Canada and all were members of CDIC. There have been no failures since 1996. Information on the Canadian system is found at http://www.cdic.ca/. Insurance is restricted to registered member institutions, and covers only the first C$100,000 in very specific categories of accounts. Credit unions and Quebec’s caisse populaire system are not insured Federally, because they are created under Provincial charters and backed by Provincial insurance plans, which generally follow the Federal model. Funds in a foreign currency, not Canadian dollars, are not insured, such as a US dollar accounts even when held in a registered CDIC financial institutions. GICs with a longer term than 5 years are also not insured. Funds in foreign banks operating in Canada may or may nor be covered depending on whether they are members of CDIC. Some funds in the RRSP or RRIF at their bank may not covered if they are invested in mutual funds or held in specific instruments like debentures issued by government or corporations. The general principle is to cover reasonable deposits and savings, but not deposits deliberately positioned to take risks for gain, such as mutual funds or stocks.
The roots of all of this well organized reform can be traced back to the 19th century, such as the Upper Canada’s financial problems of 1866, the North American panic of 1872 and the 1923 failure of Toronto’s Home Bank, symbolized today by Casa Loma. Historically in Canada regional risk has always been spread nationally within each large bank, unlike the uneven geography of US unit banking. layered with savings & loans of regional or national size, who in turn disperse their risk through investors. Generally speaking, the Canadian banking system is well regulated, in part by the little known Inspector of Financial Institutions, who can in an extreme case close a financial institution. That, plus Canada’s tight mortgage rules, mean the risk of bank failures similar to the US are slim, but not impossible.
MEXICO
Mexico’s Banking Act of 1897 established the legal possibility of failure of a credit institution, but set up some mechanisms in the banking law itself to prevent bank failures - but the law itself did not create a formal insurance scheme. In 1981 the General Law of Credit Institutions and Auxiliary Organizations provided for the creation of a fund to protect credit obligations assumed by banks.
EUROPEAN UNION
Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes requires all member states to have a deposit guarantee scheme for at least 90% of the deposited amount, up to at least 20,000 euro per person. On October 7, 2008, the Ecofin meeting of EU's ministers of finance agreed to increase the minimum amount to 50,000. Timelines and details on procedures for the implementation, which is likely to be a national matter for the member states, was not immediately available.
The increased amount followed on Irelands move, in September 2008, to increase its deposit insurance to an unlimited amount. Many other EU countries, starting with the United Kingdom, reacted by increasing its limit to avoid that people transfer savings to Irish banks.
BRITISH ISLES OFFSHORE
Although many offshore subsidiaries of mostly British-based banks and building societies in the Isle of Man, Jersey and Guernsey offer a parental guarantee for all sums deposited with them, the Crown Dependencies fall outside the jurisdiction of both the United Kingdom's Financial Services Authority guarantee to underwrite the first £50,000 per depositor per bank and the European Economic Area 'passport scheme' that pays a minimum of £16,000 per depositor per bank in the case of a default. In 1991, the Isle of Man introduced a bank depositors' insurance scheme to cover 75 percent of the first £15,000 per depositor per bank, but it was the October 2008 crisis-stricken Icelandic government's seizure of Kaupthing Bank hf in Iceland after the United Kingdom suspended the trading licence of Kaupthing's British subsidiary that compelled a radical revision of deposit insurance in the Isle of Man. Unable to secure reserves held by Kaupthing hf in Iceland or Kaupthing's British subsidiary to facilitate customer withdrawals, Kaupthing Singer and Friedlander (Isle of Man) Ltd. saw its Isle of Man banking licence suspended after operating less than a year, compelling the firm to request to be wound up. The Isle of Man government called an emergency session of the Tynwald parliament which voted unanimously to bring the Isle of Man depositors' compensation scheme into line with the newly-enlarged scheme in the United Kingdom, guaranteeing with immediate effect 100 percent of the first £50,000 per depositor per bank, and studying amendments for the subsequent inclusion within the scheme of corporate and charitable accounts. The Isle of Man government also pressed the Icelandic government to honour Kaupthing hf's irrevocable and binding guarantee of all depositors' funds held by Kaupthing, Singer and Friedlander (Isle of Man) Ltd. In Jersey and Guernsey, deposit insurance schemes for non-residents have yet to be enacted.
AUSTRALIA & NEW ZEALAND
The Australian Prime Minister announced on October 12, 2008 that, in response to the Economic crisis of 2008, 100% of all deposits would be protected over the subsequent three year period. This measure comes on top of existing mandates of APRA and ASIC to monitor Australian banks and deposit taking authorities to ensure that their risks do not compromise the safety of depositors funds.
New Zealand has announced on October 12, 2008, that an opt-in scheme for retail deposits will be introduced 100% cover. Banks and other institutions. First NZ$5billion free, excess amounts charged at 10 basis point pa.
RUSSIA
Russia enacted deposit insurance law in December 2003 and established the national deposit insurance agency (DIA) in 2004. Until 2004, Russian banking system was divided: obligations of state-owned Sberbank were guaranteed by law, while other banks were not insured in any way, creating an unfair advantage for Sberbank. The law addresses only individuals' deposits. Maximum compensation is limited at 400,000 roubles (equivalent to 16 thousand US dollars or 11 thousand Euro at July 2008 exchange rate); amounts up to 100,000 roubles are repaid at face value, the balance at 10% discount. As at January 2008, DIA funds exceeded 68 billion roubles (2.8 billion US dollars). There were 15 "insured events" (bankruptcy cases involving DIA intervention) in 2007 with resulting payout reaching 350 million roubles.
The agency is set up as a state-owned corporation, managed jointly by Central Bank and the government of Russia. DIA membership is mandatory requirement for any bank operating with private investors' money. Central Bank of Russia used admission of banks into DIA system to weed out unsound banks and money launderers.
SWITZERLAND
Switzerland does not have a governmental deposit insurance with the exception of the government-owned Cantonal banks, which have a 100% deposit insurance. However, Swiss domiciled banks have a mutual agreement regulated by the Swiss Federal Banking Commission (SFBC) to treat the first 30,000 CHF of deposits per person as second class creditors in case of a bankruptcy, meaning savers get partly-paid together with other second-class creditors, but only after first class creditors are paid. For example, the SFBC started proceedings under this scheme in the case of the failure of the Geneva branch of Kaupthing Bank Luxembourg on 9 October 2008.
INDIA
India was the second country in the world to introduce Deposit Insurance in 1962. The Deposit Insurance Corporation commenced functioning on January 1, 1962 under the aegis of the Reserve Bank of India (RBI). 1971 witnessed the establishment of another institution, the Credit Guarantee Corporation of India Ltd. (CGCI). In 1978, the DIC and the CGCI were merged to form the Deposit Insurance and Credit Guarantee Corporation (DICGC). |
