Abstract

Following widespread pressure from various quarters – internal and external – South Africa’s central bank recently opened up debate about the need to amplify the current financial safety net with an explicit deposit protection arrangement. While highlighting the adverse effects of such a scheme, this article seeks to support the South African government’s recently announced proposals for an explicit deposit insurance scheme. More fundamentally, the article seeks to show that if it ends up being properly executed, deposit insurance could be a crucial tool in averting moral hazards and enhancing both financial sector stability and deposit protection. Overall, this article contends that by providing a contractually binding arrangement which is reinforced by a robust prudential and supervisory framework, the proposed deposit protection scheme is a step in the right direction.