The Deposit Insurance Act, 2020 (DIA) was passed by Parliament in December 2019 and signed into law in January 2020. The DIA establishes the legal framework for deposit insurance in Belize to protect the depositors of domestic banks and credit unions.
The main elements of Belize’s deposit insurance system that are established by the DIA are:
- Establishment of a Deposit Insurance Corporation (DIC) with responsibility for the administration of the deposit insurance system and management of the Deposit Insurance Fund.
- Establishment of a Deposit Insurance Fund (DIF) that will be funded through initial contributions from the Central Bank of Belize and fund members (domestic banks and credit unions) and annual premiums from fund members. The DIF may also be increased by returns on its investments in safe and liquid assets.
- The DIA provides for the target size of the DIF at a level that is anticipated to be adequate to compensate depositors. If the DIF is inadequate, the DIC may borrow or require fund members to pay emergency premiums.
- Mandatory Membership – Banks and credit union are required to be fund members.
- The DIC will be responsible for paying compensation to insured depositors upon the failure of a bank or credit union. The DIC will not be responsible for intervention, resolution or liquidation of the bank or credit union that is in trouble or has failed.
- The DIA provides for the type of deposits that are insured. In the case of credit unions, ordinary shares will be treated as deposits and are also insured up to the insured limit.
- Generally, $20,000 of an insured deposit will be covered. The limit of $20,000 is high enough to provide the confidence to general depositors that their deposits are secure and to deter a bank run. However, the limit is also not high enough to eliminate the incentives of depositors (especially large depositors) to exercise market discipline or for banks to manage risk.
- The DIA includes a special provision to address situations where the credit union is a depositor of a failed domestic bank or credit union.
- Some depositors (e.g. related parties) will not be paid deposit compensation. These depositors can claim from a liquidator under the existing legislative provision on the priority of claims during liquidation in the Domestic Banks and Financial Institutions Act.