Bank customers with Bermuda dollar accounts will have up to $25,000 of their money protected should their local bank collapse.

In such circumstances, they will receive compensation through the Bermuda Deposit Insurance Corporation, providing they fulfil the eligibility criteria.

HSBC Bank Bermuda, Butterfield Bank, Clarien Bank and Bermuda Commercial Bank, are members of the scheme, and they are paying in to the pre-funded deposit insurance fund.

The scheme provides a safety net for depositors, insomuch that if their bank fails they will get some or all of their deposited money returned, up to a maximum of $25,000 per depositor, per bank.

The island is now among 143 countries and jurisdictions around the world that have deposit insurance schemes.

Since the financial crisis of 2008, such schemes have become increasingly widespread as a way to give some protection to bank customers.

They aim to give public confidence in the banking system and reduce the likelihood that depositors would panic and withdraw funds if there was sudden concern about the stability of a bank.

In Bermuda, the idea of an insurance deposit fund was first proposed in 2010, with legislation the following year and more in 2016. The scheme has been working in the background for a few years, and was announced today.

However, Bermuda’s insurance deposit fund is still in its early days of building up its reserves from premiums paid by the banks, and it is anticipated it could take another 15 to 20 years for it to have sufficient funds to cover its potential financial obligations.

When asked what will happen if a bank fails in the meantime, Stephen Todd, chairman of the BDIC, said: “We would not wish to see such an event transpire. We would need to ensure that there is some framework in place, some contingencies to at least avoid such an eventuality.

“It is a process that really is a work in progress. It is not something that we can necessarily safeguard against, but we wish to ensure we take all the necessary steps to prevent it as best we can.”

An information brochure that explains how the scheme works, mentions that the Bermuda Government is providing liquidity support to the scheme while the deposit insurance fund is bing built up. The Royal Gazette is seeking clarity on what this would mean in terms of depositors being compensated up to the maximum level.

The brochure also provides scenarios to show how the scheme works in different circumstances.

A simple example would be if an individual has $20,000 in a Bermuda dollar account. If that customer’s bank failed, they would be eligible for $20,000 in compensation through the fund. On the other hand, if they had $50,000 in Bermuda dollar deposits, regardless of whether it was split across more than one account at the bank, they would be eligible for a maximum of $25,000 in compensation.

The scheme covers accounts of individual and joint account holders, sole partnerships, partnerships, unincorporated associations, registered charitable organisations and corporate small businesses registered with the Bermuda Economic Development Corporation.

It only applies to Bermuda dollar accounts, and there are no immediate plans to change that. Mr Todd said Bermuda dollar accounts are the primary and largest concentration of deposits held with local banks.

“We feel it is first and foremost our responsibility to look after the Bermuda dollar deposits and then proceed accordingly,” he said.

Curtis Dickinson, the finance minister, and Thomas O’Rourke, of the Bermuda Bankers Association, also spoke at the press conference where the BDIC and the deposit insurance scheme were announced.

In prepared remarks, Mr O’Rourke said: “Public confidence reduces the likelihood that depositors of an individual financial institution will panic and withdraw funds suddenly if concerns arise about the condition of that institution.

“We have seen examples outside of Bermuda where concerns about one financial institution have at times led to concerns about others, resulting in so-called “contagion runs”. Thus, deposit insurance supports the stability and smooth operation of the entire financial system by providing insured depositors with prompt reimbursement or access to insured depositors’ funds.

“Delays in reimbursement can also cause financial hardship for depositors, who may need funds for everyday living expenses. A scheme that provides prompt reimbursement aids in enhancing public confidence in Bermuda’s financial sector and economy.”

He said the Bermuda Bankers Association fully endorsed the scheme, which is mandatory for all licensed banks.

The deposit insurance fund is being built up from premiums paid by the banks, currently calculated on qualifying insured deposits at the rate of 0.25 per cent, per annum, and also from earned investment income.

In addition to the banks, the Bermuda Industrial Union Members’ Credit Union is being integrated into the deposit insurance scheme.

The public can learn more about the scheme from the BDIC brochure, which will be available at scheme members, or by visiting the website https://www.bdic.bm/