If a bank fails, up to R100 000 in your account will be guaranteed as part of new scheme

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Every bank in SA will have to provide R100 000 insurance per depositor under the Reserve Bank's Corporation for Deposit Insurance.
Every bank in SA will have to provide R100 000 insurance per depositor under the Reserve Bank's Corporation for Deposit Insurance.
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  • The SA Reserve Bank's new Corporation for Deposit Insurance will cover depositors for the first R100 000 they've saved with each bank.
  • This will increase the protection that customers get when a bank fails from the current R50 000.
  • The corporation will be funded by the banking sector, not the government.

The South African Reserve Bank (SARB) is in the process of establishing a deposit insurance scheme that will repay the first R100 000 in a bank account, if that bank goes under.

On Wednesday, during the presentation of SA's financial stability review, SARB Governor, Lesetja Kganyago, announced that the planned new Corporation for Deposit Insurance will operate more like an insurance scheme.

"The South African financial system is now not just more resilient, but we will now have an explicit deposit insurance, which means that depositors are protected," said Kganyago.

He said while SA has always protected bank depositors to a certain extent, but that protection was "implicit".

"What the establishment of Corporation for Deposit Insurance will do is make it more explicit, and actually operate more like an insurance scheme," he added.

The main objective is to make sure that banks' depositors don't lose everything or are completely left at the mercy of the liquidators in the event of a bank failure. 

The corporation will be administered by the SARB. Every bank will have to provide R100 000 insurance per depositor. This will ensure that depositors get a fast payout if a bank fails without having to wait for the liquidation process.

However, anything above R100 000 per depositor per bank will be lost. If a customer has multiple accounts with the bank, they will only get a maximum of R100 000 from that bank.

"So, if you had a R110 000, we would only make good the R100 000. The other R10 000 above that, you will lose. But 90% of the depositors in the South African banking industry do not have more than R100 000. They will be adequately covered," said Kganyago.

In the past, when a bank failed, the SA government gave each depositor R50 000. But it was a lengthy process. This happened during the collapse of Sambo, Regal Bank, VBS Mutual Bank and other smaller banks that went into curatorship. 

When the SARB placed VBS under curatorship, it was already in advanced stages of reviewing the amount of depositor protection from R50 000 to R100 000.

Dr Nicola Brink, head of the SARB's financial stability department, said in the past there was also no clear preference for depositors when a bank went into liquidation. Now, depositors will be as important as other creditors if a bank goes into liquidation. The depositors' insurance fund will have a preferential status in the creditor hierarchy.

"This framework closes important gaps in South Africa's financial safety net," said Brink.

Curatorship still an option 

However, Kganyago emphasised that having bigger depositors' insurance doesn't mean that a failing institution will no longer be placed in curatorship.

"Curatorship is meant to nurse a sick institution back to health. So, curatorship will always be there," he said.

However, the curatorship process is going to change slightly. Execution of curatorship will fall under the SARB in future. Currently, the SARB appoints someone from one of the big accounting and audit firms as a curator, and they have the legal powers to make all decisions.

"The legal powers will vest in the Reserve Bank directly, and not in the curator as it is currently," said Brink.

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