EDITORIAL: Bank’s deposit insurance scheme a milestone

News from the Reserve Bank that the Corporation for Deposit Insurance has been established, is a milestone in a process that began at least two decades ago, during SA’s small banks’ crisis. The new entity will put a formal deposit insurance scheme in place that will protect depositors from losing their cash if their bank fails. That could help to enable new small banks to enter the system and succeed. With a cap of R100,000, the scheme will give comfort to small retail customers, even though it won’t mean much for corporate or wealthy customers with much larger sums on deposit. 

The thing is they already had a great deal of comfort. The government has never allowed small retail bank customers to lose money when banks fail and it’s unlikely it ever will, so there has always been an implicit insurance scheme in place. Perhaps even more important is the comfort depositors can derive from SA’s sound and sensible banking regulation.

As the new deposit insurance scheme will be funded by a levy from the banks it will add to banking costs. The benefit is that it is part of a more formal approach to resolving failed banks that will further support confidence in the system.