Who coughs up if your bank folds? | Business

If one of South Africa’s top banks collapsed tomorrow, would your money be protected?

The country has no insurances for depositors other than an “implicit” guarantee that the government, and ultimately the taxpayer, would rescue bank customers.

But this week the South African Reserve Bank and treasury released the details of a proposed deposit insurance scheme, detailing explicit cover intended to protect retail depositors, particularly the poorest and most vulnerable.

South Africa lags behind other countries in this regard.

In the past, the banking industry and regulators have been unable to agree on the implementation of a scheme because of concerns about the cost implications for the sector.

Concerns have also been raised over moral hazard – which in this case would amount to the failure by a bank to guard against risk when it is protected from its consequences, by insurance covering its depositors.

The deposit insurance scheme proposes cover of up to R100 000 for qualifying deposits per bank, and is intended primarily to cover retail depositors and the deposits of small and medium enterprises (SMEs).

This would cover the majority of citizens, although they represent a relatively small share of the total deposits in the banking sector, said Kuben Naidoo, deputy governor of the Reserve Bank and the registrar of banks. “While the coverage is relatively low in proportion to total banking assets covered, our job is to protect the poorest and most vulnerable depositors.”

The retail customer deposits would include current accounts and other accounts such as fixed-term deposits and notice accounts.

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Deposits that would not be covered include deposits held by banks, and deposits held by the non-bank private financial sector, such as money market unit trusts, non-money market unit trusts, insurers, pension funds and fund managers.

The proposed scheme would also not cover government deposits, including those held by local, provincial and national government, public financial sector entities and the Public Investment Corporation.

Although the Reserve Bank had not taken a firm decision on how to implement the scheme, Naidoo said, it had tried to explore the best ways to introduce a deposit insurance scheme that aimed “to protect the fiscus without too big a hit on consumers and on the banking system over time”.

Naidoo estimated that it would take about two years to put in place.

Retail and SME deposits comprise about 60% of the total value of potentially qualifying deposits in the banking sector, according to the Reserve Bank’s discussion document.