‘It makes sense to protect depositors’: Reserve Bank launches deposit insurance

South Africans can now deposit their hard earned money with some peace of mind in the event of a bank failure.

Reserve Bank (Sarb) Governor Lesetja Kganyago launched the Corporation for Deposit Insurance (Codi) on Thursday in Sandton.

A subsidiary of the central bank, the insurance body is set to protect bank depositors in the event of a bank failure – providing them with cover of up to R100 000.

Speaking at the launch, the Sarb Governor said protecting depositors was a no-brainer.

“It is a universal business model of banks to fund their assets with borrowed money, so depositors can be viewed as investors in banks.

“Usually we say investors must accept the risks of making investments, but depositors are special and most governments protect them.”

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‘Timeous access to deposits’

Sarb’s introduction of Codi is in line with the central bank’s mandate to ensure stability in the financial sector, hence the move to protect individuals and non-financial businesses.

“This means that should a bank fail to meet its obligations, covered depositors are protected by having timeous access to their deposits,” Kganyago said.

The deposit insurance applies to qualifying depositors of all banks, including commercial, co-operative and mutual banks, as well as local branches of foreign banks.

“The cover is automatic and depositors do not have to register for Codi’s protection,” said Sarb.

Taking a page from history, Kganyago said the collapse of VBS mutual bank was a learning curve.

“It’s regular depositors were provided with accounts at another bank, which carried for amounts up to R100 000 – covering 98% of the bank’s depositors.”

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Stokvels are included

When it comes to eligibility criteria, the insurance fund covers deposits held by retail and private non-financial corporate depositors.

“This coverage limit fully protects 9 out of 10 qualifying depositors in the country,” Sarb said.

• Individuals
• Non-financial businesses
• Charitable or non-profit organisations
• Religious entities
• Trade unions
• Consumer associations
• Stokvels

The newly introduced insurance body protects banking products where both the deposit and accrued interest are guaranteed.

“Qualifying products typically include, but are not limited to, savings accounts; current accounts; transactional accounts; term and notice accounts; Islamic Wadi’ah, Qard and Murabaha products; and tax-free savings accounts,” Sarb said.

Codi’s primary responsibilities also include informing depositors of the fund’s benefits and limitations should their bank be placed into resolution.

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Twin Peaks model

Finance Minister Enoch Godongwana said the deposit insurance was a significant step in overhauling South Africa’s financial regulatory structure and advancing the Twin Peaks model.

The Twin Peaks model splits regulatory duties in the financial sector between the Prudential Authority and the Financial Sector Conduct Authority (FSCA).

The FSCA informs how financial institutions conduct their business and treat customers, while the Prudential Authority deals with the safety and soundness of financial institutions.

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