The Central Bank has already discussed the proposal with the banking community
and the Deposit Insurance Act which will govern the deposit insurance scheme,
and which is presently in draft form, will soon be available for comment. Amendments
to the Financial Institutions Act and the Central Bank Act will also be required
in order to ensure flexibility and speed in the resolution of problem institutions.
The principal features of the insurance system are as follows:
The Central Bank will contribute the required capital of $1 million dollars;
There will be mandatory membership for all deposit taking institutions licensed
under the Financial Institutions Act (FIA);
Depositors will be guaranteed payouts up to a limit of $25,000 in the event
an institution fails. Payouts in excess of this will depend on the corporation's
ability to recover the assets of a failed instruction. It is estimated that
this limit will cover one third of the value of deposits in the financial system;
The Deposit Insurance Fund (DIF) will be funded by flat rate premiums levied
on all member institutions. The premium rate is still under discussion but is
likely to lie between 0.05% and 0.075% of insurable deposits;
All member institutions will pay an initial contribution equal to the size of
its assessed premium immediately on start-up and an annual premium assessed
in the first quarter of each year; and
The Central Bank will also be required to make an initial contribution to the
Fund of an amount equal to the sum of the initial contributions to be paid by
member institutions.
Tax on Bank Assets
The tax on bank assets was introduced in 1983 as a revenue-raising measure.
However, with the introduction of the deposit insurance scheme, it will represent
an added cost to commercial banks in the short term. To offset this, the Government
of Barbados will phase out the current tax on commercial bank's assets beginning
in income year 2004.
Secondary Mortgage Market
As part of the initiative to create new financial products and meet the pent-up
demand for housing, the Government will seek to create a secondary mortgage
market. This endeavour would encourage the diversification of financial products
through the issuance of mortgage-backed securities, and provide a viable alternative
instrument for potential investors. While it is recognised that the benefits
of such a market are best realised in situations of tight liquidity, it is imperative
that we be proactive and begin this process immediately. In order to expedite
the process, the Central Bank will take responsibility for the development of
this market.