Antoinette McKain, chief executive officer of the Jamaica Deposit Insurance Corporation - Contributed

The Jamaica Deposit Insurance Corporation (JDIC), ideally, says it needs to insure up to 10 per cent of deposits in the financial system because of the uncertainties inherent in an economy in free fall, which, at current count, would amount to more than $20 billion.

But, as at June 2009, the corporation had $5.5 billion from which to cover Jamaica's savings pool in the custody of banks, near banks and private mortgage companies.

By the agency's estimate, coverage of insurable deposits was at 2.7 per cent at June.

"Because of what we have seen arising in the global market conditions and consistent with international standards, because of the crisis many deposit insurance corporations have increased ratio and coverage," said Antoinette McKain, chief executive officer of JDIC.

McKain has set a coverage target of eight to 10 per cent, but is not saying how JDIC would produce that outcome nor within what time frame. Were a bank or other deposit institution to fail, each account holder would be eligible to claim up to $600,000.

$200 billion covered

Indeed, the deposit insurer three years ago set a target of five per cent coverage but is yet to hit that benchmark.

The fund target ratio represents the level of deposits in the insurance fund expressed as a percentage of the total estimated insured deposits within the system.

Insured deposits amounted to $200.4 billion at June 2009, according to the JDIC.

All deposit-taking institutions, numbering 14, are policyholders of JDIC. No institution has failed since the JDIC was formed a little over a decade ago in 1998 so its response mechanisms have never been tested.

Its insurance fund is chiefly financed by policyholder premiums, but a portion is from returns on the invested funds. Of the JDIC's estimated $1.2 billion in yearly income at March 2009, premiums of $553 million lag interest on investments of $657 million.

Projections in 2009/10 are for investment income of $747 million and premiums of $648 million for a total of $1.4 billion.

Still, McKain acknowledged that the dampened markets and the lowering of interest rates have cut into returns on investment, and she was non-comital on whether a premium rate increase was on the cards, leaving one other option to grow the fund - adding new policyholders.

The cooperative movement offers one opportunity, but the timing rests on the conclusion of the legal and procedural arrangements for the Bank of Jamaica - overseer of all deposit takers - to begin regulating the credit union sector, whose savings pool topped $33 billion at March 2009.

McKain said the current 2.7 per cent coverage was 'adequate', for now, but added a rider.

"When we do the fund risk analysis in the system, as we stand, we are quite adequate, but we do have the option to borrow to bring the fund up to the level if there is a systemic problem," she said.

In accordance with the insu-rance act, a yearly review of the fund is done, looking at its liabilities and potential liabilities.

Orderly system

"If there is a systemic pro-blem, it is looked at in a holistic way so we have an orderly system through which money will be refunded. And, we are adequately funded right now," she added.

JDIC has the ability to achieve that target faster or slower by adjusting factors directly under its control.

Such factors, according to McKain, includes premium rates or, in the event it became necessary, the option to borrow funds to make up any short fall.

"It's a notional target where we want the fund to get to," said McKain. "But in getting to that point, there are variables we can change that can affect how fast or slow we get there, so we don't normally publicise a timeline," she said.

Credit unions

Meanwhile, the JDIC chief executive officer said the agency is preparing to add credit unions to the system, but could end up creating a new structure for the smaller, often community-based lenders.

"We have been looking at whether to establish a new fund or the same fund, the type of premium rate to be charged and how to assess risk," said McKain.

She estimates the credit unions will bring in an additional $250 million to the insurance fund, in the first year.

Before they come on board, the JDIC manager says it will require an upgrade of the corporation's information technology infrastructure, and a public education campaign, costing $35 million.

sabrina.gordon@gleanerjm.com