By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank’s governor says planned legal reforms will boost Bahamian consumer confidence that they will receive “swift payouts of all insured deposits” should their bank collapse into insolvency.

John Rolle, in a series of e-mailed replies to Tribune Business questions, revealed that proposed changes to the Protection of Depositors Act will create “dedicated back-up funding” for the Deposit Insurance Corporation and provide it with “greater liquidity” should it ever be called upon to compensate Bahamians if their banking institution fails and they are unable to access their money.

He added that the “back-up” regime, besides ensuring rapid payouts of all insured deposits, will also prevent the Deposit Insurance Corporation from “exhausting” reserves that stood at $101.5m at year-end 2024. Its creation will thus generate an added layer of protection that gives Bahamian depositors greater confidence there financial well-being is protected should the worst occur.

“Establishing a back-up funding regime for the deposit insurance scheme is confidence-enhancing domestic financial stability,” Mr Rolle told this newspaper. “This provides assurances that the Deposit Insurance Corporation will be able to make all payouts of insured deposits swiftly - without running short of liquidity and without exhausting the Deposit Insurance Fund in any single payout. 

“At all times, the Deposit Insurance Corporation also needs to be able to maintain positive reserves, even ever after claims payouts. Having back-up funding satisfies this requirement. Of course, by law the Deposit Insurance Corporation would be able to levy an assessment on the member institutions to repay any borrowed resources.”

The Central Bank, in unveiling its regulatory reforms package, said the changes were designed “to strengthen the framework and operational capacity of the Deposit Insurance Corporation (DIC) by ensuring that Bahamian depositors are always protected, irrespective of the financial balance in the Corporation’s fund”.

It reiterated: “This will facilitate confidence in financial institutions, the absence of which may lead to pre-emptive runs on weak but otherwise solvent institutions. To achieve this, the draft legislation would make provision for the Corporation to have access to a dedicated, pre-arranged back-up funding arrangement with the Central Bank that is sufficient to meet liquidity needs.

“These emergency funds would be supported by government guarantees and repaid to the Central Bank.” Section 15 in the Protection of Depositors Act is to be changed to establish an emergency back-up funding facility financed by funds borrowed from the Central Bank and guaranteed by the Government.

The Central Bank governor, explaining the intent by the planned changes to the Act and its accompanying regulations, told Tribune Business: “Reforms to the deposit insurance regime, and for the Deposit Insurance Corporation (DIC), would correspond with efforts to enhance the Bahamian resolution framework for all deposit-taking entities. 

“Focus is on strengthening the role of the Deposit Insurance Corporation in matters that relate to domestic financial stability, improving the robustness of systems that handle weak or failing institutions, and boosting the speed, efficiency and effectiveness of the Deposit Insurance Corporation during the claims payout process.

“For the consumers, the regulatory reforms are expected to boost confidence and trust in financial institutions and the financial services sector. The proposed legislative amendments would establish dedicated back-up funding for the Deposit Insurance Corporation, and essential liquidity for timely payouts to depositors when it is required,” Mr Rolle added.

“Bolstered public confidence in financial institutions benefits all institutions, and allows institutions to effectively satisfy their role in providing credit within the economy.”  Mr Rolle, in March this year, revealed that 580,000 Bahamian bank accounts, representing 96 percent of the total, were fully protected against their institution’s possible collapse as at year-end 2024.

He suggested the Deposit Insurance Corporation would take another “two to three years” to reach its $130m target size, having reached $101.5m at year-end 2024 - some $29.5m shy of this goal. However, it was already well within international benchmarks, standing at 3.6 percent of insured deposit values after enjoying an average 11 percent growth rate over the previous five years.

“As at the end of 2024, the size of the Deposit Insurance Fund was $101.5m (3.6 percent of insured deposits’ values),” Mr Rolle said on March 31, 2025. “There were approximately $2.8bn of insured deposits within 18 member institutions. In this regard, the number of fully insured accounts was approximately 580,000, which is a coverage ratio of 96 percent of the accounts.

The Deposit Insurance Fund was established in the late 1990s following the collapse of Gulf Union Bank (Bahamas), which left many small local - as well as large - depositors exposed to life-changing financial losses because they were unable to recover their deposits. The Fund now fully insures all deposits up to a maximum $50,000, thus protecting most individuals and families from financial hardship should a bank fail.

The Deposit Insurance Fund is financed by annual legally-mandated contributions from the commercial banks, both Canadian and Bahamian-owned, as well as all other deposit-taking institutions in The Bahamas such as the credit unions. The contribution rate was doubled as of January 2024 from one-twentieth of 1 percent to one-tenth of 1 percent of insurable deposits.

Mr Rolle, detailing the Central Bank’s goals for the overall reform package, told Tribune Business: “The key objectives of the proposed reforms are to ensure consistency in the application of resolution measures and supervision across domestic banks and credit unions, as both groups of entities are members of the Deposit Insurance Corporation (DIC). 

“This includes a harmonisation of the process by which the Central Bank can engage with the Boards and management of financial co-operatives when the entities require closer oversight. In addition, for credit unions, it gives the Central Bank similar regulatory authority, as it has for banks, to review the suitability of persons appointed to boards and senior management and positions in credit unions. 

“Other proposed governance reforms in the reform package are also intended to strengthen oversight of the sector..... As to the implementation process, it is anticipated that financial institutions would be able to readily adapt their operational frameworks to accommodate the proposed legislative changes. However, the feedback from stakeholders during public consultation should help to identify revisions that could be incorporated into the proposals.”