Business Times

Central Bank: Only a supervisor not a guarantor of deposits

The Central Bank (CB) regulatory mechanism should not be confused as that of the banking regulator being guarantor of public deposits, CB Governor Nivard Cabraal told the press on Thursday.
The briefing was called following some political parties raising concerns over the security of public deposits in registered financial institutions following a newspaper advertisement on deposits by the CB.

“There’s an element of risk which is however minimized through our stringent supervision. Some raised concerns after the Central Bank’s advertisements listing registered institutions which had a line saying it does not guarantee the safety of deposits, but it also cautioned the public to protect their hard earned money without depositing them in unauthorised or risky institutions,” Mr. Cabraal said, adding that the past incidents of default of repayment of deposits by such institutions are still not a distant memory.
He added that when investing in an institution, one should take due care and the role of the CB is not to act as guarantor on the investments, but as a regulator closely supervising the financial institutions in the country. He added that CB has checks and balances in place to maintain tabs on financial institutions as to ensure that these institutions adhere to CB requirements.

Mr Cabraal told the Business Times on the sidelines of the press conference that the CB. supervises these institutions through stringent controls on every registered bank and financial institution in the country. “This supervision structure makes the management structure of these institutions higher than that of normal businesses, but we cannot guarantee the investor deposits,” he said.

He told reporters that the depositors should always realise that there is a certain degree of risk involved when depositing and no Central Bank anywhere in the world or any government anywhere for that matter acts as a guarantor in relation to deposits in financial institutions. “One should not misunderstand this supervision right and the responsibility as some kind of guarantor status offered by the Central Bank.”

Mr. Cabraal explained that in the case of the National Savings Bank, it has been established by a different law in which NSB is required to guarantee the monies of the depositors. “This is true for other state banks such as Bank of Ceylon as well as Peoples’ Bank. Financial institutions in the country and their capacity differ, due to many reasons such as capital, liquidity, loans, management capability and experience. Besides, due to various requirements, they also offer different interest rates on deposits. Therefore people have a choice to make their deposits under differing interest rates which contain a certain degree of risk,” he added.

He also said that CB has taken steps to ensure all financial institutions will transform into public quoted companies by 2012.

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