How Deposit Insurance Does Not Work

AN EXAMPLE OF HOW DEPOSIT INSURANCE DOES NOT WORK

A depositor has the following portfolio:-

  1. A deposit balance of $140,000;
  2. An outstanding loan balance of $130,000;

The uninformed depositor will apply the loan balance of $130,000 against the deposit balance of $140,000 leaving an incorrect net reimbursable amount of $10,000 since the $10,000 is less than $125,000.

EXAMPLE SHOWING AN INCORRECT CALCULATION OF WHAT THE DEPOSITOR EXPECTS TO RECEIVE

Account Type

Account Balance With Loan

TT Dollar Deposit

140,000.00

Deduct:
Loan Balance

130,000.00

Net Position

10,000.00

Maximum Reimbursable Amount (restricted)

125,000.00

Incorrect Net Amount Due to Member

10,000.00

The DIC will apply the limit rule accordingly:-

The deposit balance of $140,000 will be reduced to the maximum reimbursable limit of $125,000.

The reimbursable limit of $125,000 will be set off against the loan balance of $130,000 resulting in a nil balance due to the depositor. In simple terms, no payment would be made to this depositor.

RE. EXAMPLE ABOVE: THE FOLLOWING IS THE CORRECT CALCULATION OF WHAT THE DEPOSITOR WILL RECEIVE

Account Type

Account Balance With Loan

TT Dollar Deposit

140,000.00

Maximum Reimbursable Amount (restricted)

125,000.00

Deduct:
Loan Balance

130,000.00

Net Position

(5,000.00)

Correct Net Amount Due to Member

0.00

 


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