Published On: Wed, Jun 7th, 2017

Bank Deposit Guarantee System for public entities

WIBTHE HAGUE - The Dutch Government will institute a so-called Deposit Guarantee System for Bonaire, St. Eustatius and Saba to create more security for bank clients on the islands. In case of bankruptcy of a bank, clients will receive a maximum of US $6,000.

The Dutch Ministry of Finance announced on Tuesday its intentions to establish a Deposit Guarantee System for the Caribbean Netherlands. A similar arrangement for banks in Curaçao and St. Maarten proved unfeasible due its complexity.

The Dutch Ministry of Finance, the Dutch Central Bank DNB and the Central Bank of Curaçao and St. Maarten (CBCS), in consultation with the bankers associations in Curaçao and St. Maarten, were engaged during the past year in talks to establish a joint Deposit Guarantee System.

However, this joint exercise proved to be too complex. “A joint Deposit Guarantee System did not appear feasible within the foreseeable term.” As a result, the Dutch Government decided to go ahead and establish this entity for the Caribbean Netherlands. “It is not desirable to defer a safety net in the form of a Deposit Guarantee System any longer.”

The Netherlands and most other countries have guarantee systems in place for money that clients deposit on their bank accounts. These systems not only serve to protect the bank clients, but also function to prevent people from withdrawing their money in large numbers in case of doubts about a bank’s financial solvency.

The Deposit Guarantee System only pays out when a bank cannot repay the deposits of their clients; for example, in case of bankruptcy. The bank sector will finance the Deposit Guarantee System whereby, if necessary, the Dutch Government will pre-finance the repayment of the clients in case of insolvency. The bank sector will have to pay back the money at a later stage.

The Deposit Guarantee System will guarantee deposits of islands’ residents at the banks that are active in the Caribbean Netherlands up to an amount of US $6,000. The maximum amount in case of the extreme scenario that all banks on the islands would collectively go bankrupt was set at 135 million euros (22,000 residents times US $6,000).

According to the Dutch Government, the Deposit Guarantee System is also necessary due to the limited supervision the Dutch Central Bank has on the solvency of the banks that are active on the three islands. With the exception of one bank in Bonaire, the banks on the islands are solely branch offices of banks in Curaçao and St. Maarten.

“DNB is therefore dependent on the CBCS for its prudent supervision. DNB has little to no possibilities to monitor the solvency of the branch offices and to correct through intervention,” it was stated in the document.

The limited carrying capacity of the banks in the Caribbean Netherlands necessitates a guarantee of the Dutch Government. This government guarantee is necessary for the Deposit Guarantee System to function.

The total premium of the banks for the Deposit Guarantee System has been set at one million euros per year. The Dutch Government will deposit the premium in a special budget reserve at the Ministry of Finance.

The Dutch Government has opted to finance the premium not only because of the local banks’ limited capacity, but also because the premium might cause the banks to reconsider their presence on the islands. The latter would result in an undesirable situation considering the need to guarantee a minimum of banking facilities on the islands.

The Deposit Guarantee System is a temporary guarantee until a more structural solution has been achieved. These solutions include a better guarantee of the solvency of banks that are active in the Caribbean Netherlands. This will be done in consultation with the Dutch Central Bank.

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