Cenbank: Deposit insurance ready to go

The Uruguayan government is ready to introduce a new deposit insurance guarantee, central bank chairman Julio de Brun was quoted by local daily La Republica as saying. Uruguay was hit by a serious economic and financial crisis last year during which many of the largest banks suffered massive deposit runs. As a result, several banks were temporary closed and deposits frozen and later returned in gradual processes that are still ongoing. De Brun said the insurance would favor deposits in local currency and would be implemented gradually. Uruguay's private banks have criticized the new system as too costly. The banks have said they are not prepared to assume that extra cost, which will be transferred to clients who will gain almost nothing on their deposits that already earn low interest. Most of the private banks in Uruguay are foreign-owned and they suffered less from the crisis and it could be understandable that they are hesitant to finance a domestic deposit insurance, Fitch Ratings managing director for financial institutions in Latin America, Peter Shaw told BNamericas. Whether a deposit insurance is a good thing or not depends on each country and the design of the insurance, but when the public's confidence has been shaken by a crisis - like in Uruguay - then there is a place for a deposit insurance to help regain confidence, Shaw said.