Shadow Finance Minister Bob Richards has given his backing to Government's proposed new deposit insurance scheme in principle, but is waiting to hear the full details of what it involves.

Mr. Richards said the United Bermuda Party supported the concept of the plan to introduce legislation to protect everyday bank depositors, which was announced in this month's Throne Speech and would insure customer deposits to a fixed maximum, depending on the size of their deposits.

He added that the legislation, if properly drafted, has the potential to fortify Bermuda as a stable business environment, for both local and international businesses, claiming that deposit insurance also could keep the Island in line with international standards designed to protect depositors.

But Mr. Richards also recommended that the core principles supported by the Basel Committee on Bank Supervision and the International Association of Deposit Insurers be taken into consideration.

The principles require that the deposit insurer should be operationally independent, transparent, accountable and insulated from political and industry influence, membership in the deposit insurance system should be compulsory for all financial institutions accepting deposits from retail and small depositors in most need of protection, and it should give depositors prompt access to the insured funds.

They also stipulate that the deposit insurer should be a part of a framework within the financial system safety network that provides early detection, timely intervention and resolutions of troubled institutions, while funding for the initiative must be multi-pronged to ensure prompt reimbursement of depositors' claims, including a means to obtain back-up funding for liquidity purposes when needed.

Furthermore, the extent of coverage should be clearly defined in law and in prudent regulations, with no doubt about what an insurable deposit is, and the coverage limited but credible and capable of being determined, adequately covering the majority of depositors, and Bermudians being informed on an ongoing basis about the benefits and the limitations of the new system.

"Deposit insurance is not a new idea," said Mr. Richards. "It emerged in the United States following the banking crisis of the early 1930s. The legislation, which eventually protected depositors to a maximum of $200,000 each, ensured confidence in the banking system and the economy as a whole.

"This is an important concept that could help to provide further confidence in our banks and also enhance Bermuda's economic stability. While we support the concept in principle, we will need to see some specifics from the Bermuda Monetary Authority and the Government on funding, scope and how the plan might operate in Bermuda before commenting further."