Economy, Business And Markets

New Fund to Safeguard Deposits

New Fund to Safeguard Deposits
New Fund to Safeguard Deposits

The Central Bank of Iran has established a ‘’Deposit Guarantee Fund’’ to beef up its regulatory watch over monetary and banking operations, said the fund’s executive officer Mohammad Talebi.

“Although the Deposit Guarantee Fund has a history of over a century in the world, it has recently been launched in Iran to safeguard people’s deposits in insurance companies and certified financial institutions,” Tasnim News Agency quoted him as saying on Tuesday.

Under Article 95 of the Fifth Five-Year Economic Development Plan (2011-16), the CBI set up the fund back in 2010, but its regulations were later revised and finally made public last year (ended March 20,2015), he said.

“Like insurance companies, the fund receives part of the insurance premium to compensate for any loss when insurers face financial difficulties,” Talebi explained.

Another responsibility of the fund is to supervise the operation of insurers to help them avoid risky behavior and to warn them of possible financial troubles, he added.

“In fact, the fund is regarded as the representative of depositors in certified credit institutions,” he noted.

“Since over 90% of the credit institutions’ resources are provided through deposits, the fund would be in charge of securing depositors’ money in case of institutions’ insolvency.”  

Should a legal credit institution face bankruptcy, the fund is committed to present a practical guide to tackle the problem and take the institution’s asset management in a way to turn them into liquidity and pay the deposits that are at a risk of loss.

The fund can bring about financial stability along with regulations and supervision, he said, adding that the fund is chaired by CBI’s governor.

He called on banks and credit institutions to become a member, explaining that there are three types of membership fees: initial, special and annual.

The initial fee amounts to 2% of the minimum capital of a bank, which is now four trillion rials ($137 million at official exchange rate). The special fee is defined based on each institution’s investment risk, which is determined by the CBI. The annual fee ranges from 0.25% to 1% of the total deposit, which is specified by the fund’s board of trustees.

Talebi said 30% of the fund’s resources will be held by the CBI while the rest would be in the form of government participatory bonds.

“There is a ceiling for guaranteed deposits ($34,000) since the fund’s purpose is to protect small  depositors, which constitute 99.7% of the total depositors,” he noted.