Deposit Protection in the Bahamas

Financial institutions and banks are the backbone of society. They allow for personal and corporate spending. As such, supervised financial institutions maintain important safeguards to ensure the stability of the domestic financial system. Financial institutions therefore hold adequate risk management and internal controls. Yet even though the banking system is safe, sound and well regulated, individual or systemic failure of financial institutions may still occur. It is at this unexpected moment that deposit protection promotes confidence in the financial system and limits bank panic and exaggerated acts by creditors.

Independent and sovereign states formulate their own rules. In the Bahamas, this applies, among other things, to the Deposit Insurance Fund. The fund is administered and managed by the Bahamian Deposit Insurance Corporation (DIC). The DIC is a body corporate, or agency that is accountable to the Minister of Finance. It is not part of the government but merely managed by a Board of Directors that include members of the Central Bank of the Bahamas, the Financial Secretary and between five and seven members appointed by the Minister of Finance. The DIC collects the premium payments from participants required to serve its purpose, compensates qualified creditors and their insured deposits, and educates the public about the working of the fund in case of banking defaults and consecutive closure by the Central Bank of the Bahamas.

Deposit Protection in the Bahamas

The Deposit Insurance Fund of the Bahamas provides protection for bank account deposits in Bahamian dollars held at participating and supervised financial institutions. Membership and participation into the Deposit Insurance Fund is mandatory for supervised banking institutions and registered credit unions that take on deposits in Bahamian dollar. The objective of the fund is to protect the Bahamian economy and maintain public confidence. Coverage is maximized at 50.000 Bahamian dollar per individual or legal person.

Most international deposit guarantee schemes are activated when a financial institution is failing or is likely to fail. This includes but is not limited to financial circumstances resulting in the bank being unable to repay deposits to its creditors at short notice whilst no improvement is expected in the near future. Deposit protection in the Bahamas is activated when a DIF participant is closed directly or indirectly by an action of the regulator. Following the ‘Protection of Depositors (Amendment) Act’, a financial institution is deemed closed when the license of the institution is revoked, or registration of the credit union is cancelled.

Banks in financial distress may be placed under statutory administration to resolve adverse impact. In the event that resolution does not provide for any tangible solution, the bank is placed into liquidation and dissolved. The appointment of the liquidator activates the Deposit Insurance Fund. Announcements are made in the official Gazette and via the bank and its branches. Creditors of financial institutions in distress are therefore advised to ensure that their customer profile at the bank is up to date to receive official notifications from the bank or the liquidator.

The Deposit Insurance Fund of the Bahamas covers, as earlier mentioned, only bank deposits in Bahamian dollar held at accounts with DIC member institutions. Deposits are limited to checking accounts, saving accounts and other accounts payable. Investment products, bonds, commercial paper and other intangible holdings are excluded from coverage. Even though the location of the creditor is irrelevant for deposit insurance qualification for as long as the account contains Bahamian dollars, there are exemptions for professional market players such as financial intermediaries and institutions, and public authorities. Their deposits are excluded from such protection.

Excluded (Non-Resident) Financial Institutions

Over 270 supervised financial institutions operate in the Bahamas. Six licensees are inactive or in liquidation. One, Lucayas Bank Ltd., is currently placed under statutory administration. Most of these licensees are bank and trust companies dealing with non-resident clientele and international companies. Non-resident financial institutions engage freely in foreign currency transactions and do not take local currency deposits on behalf of their clients. As such, they are not participants in the Bahamian Deposit Insurance Fund. The Banks and Trust Companies Regulation Bill (2020) provides for ample resolution strategies to resolve failing banks.

Claim Filing Procedures

The Deposit Insurance Fund is open for claim submission for a period not longer than twelve months. Failure to submit a claim within this timeframe results in a permanent disqualification for the Deposit Insurance Fund. A claim to the fund is done for the attention of the liquidator or the DIC. Claims are only verified when the claimant submits a proof of debt and an official proof of ownership. This includes a completed official claim form, government issued identification, evidence of deposit ownership, and, where needed, an affidavit. Claimants are required to sign a release form. Approved claims are paid within six months by bank check or at a local bank account of the creditor at a DIC member bank. Creditors with claims that exceed the insured balance receive a certificate from the DIC to submit in further resolution and liquidation procedures.

Recovery of Unsecured Deposits

Deposits that are not eligible for DIC compensation, account balances above the insured amount, and creditors from non-resident financial institutions that hold no Bahamian dollar accounts – and are thus excluded from depositor protection – are subject to insolvency proceedings. The Banks and Trust Companies Act defines a special resolution framework for banks that includes a full schedule on the procedural liquidation of banks.

What to do Next…?

For account holders whose balance exceeds the maximum levels of DIC coverage and creditors of non-resident banks and credit unions who do not participate in the DIC the Bank and Trust Companies Companies Act provides several solutions. However, financial institutions close for a reason that is almost always related to their financial position. If the Central Bank is unwilling or unable to act as a lender of last resort to rescue the bank with public money, private solutions must be identified. History reveals that this is not always easy. Therefore, please complete the contact form below to discuss your case and the available options to recover your assets.

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