Deposit insurance is a system that protects depositors against the loss of their insured deposits placed with banks in the unlikely event of a bank failure. It is established by the Government to enhance the consumer protection framework and promote financial system stability. It is not related to or managed by general or life insurance companies. Generally, it is a Government sponsored scheme, although in certain countries it is sponsored by the banks.
The deposit insurance system in Malaysia was launched in September 2005 and is managed by Perbadanan Insurans Deposit Malaysia (PIDM). PIDM is a Government agency established under the Akta Perbadanan Insurans Deposit Malaysia 2005.
Benefits to depositors
• Deposit insurance protection is automatic
• PIDM protects depositors holding deposits with banks
• There is no charge to depositors for deposit insurance protection
• Should a bank fail, PIDM will promptly reimburse depositors on their deposits
Benefits to the financial system
• PIDM promotes public confidence in the Malaysian financial system by protecting depositors against the loss of their deposits
• PIDM reinforces and complements the existing regulatory and supervisory framework by providing incentives for sound risk management in the financial system
• PIDM minimises costs to the financial system by finding least cost solutions to resolve troubled banks
• PIDM contributes to the stability of the financial system by dealing with bank failures expeditiously and reimbursing depositors promptly
With the introduction of a deposit insurance system in Malaysia, depositors receive protection for their deposits under the law. Depositors will know how and when reimbursement of their deposits will be made in the event of a bank failure.
Deposit insurance is recognised internationally as an important component of a country’s financial safety net and has been implemented in some 100 countries around the world.
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