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Mutebile: BoU Will Not Allow Deposit Insurance For Uncalculated Risks

Mutebile told a meeting international deposit insurers at Lake Victoria Serena in Kigo on Monday that he was mindful of the risk that deposit insurance would stoke moral hazard through encouraging banks to take greater risks.
BoU governor Tumusiime-Mutebile


The Governor of Bank of Uganda, Emmanuel Tumusiime-Mutebile has warned banks against taking undue risks with depositors’ money because the limit of insured deposits has been increased.

Mutebile told a meeting on international deposit insurers at Lake Victoria Serena in Kigo on Monday that he was mindful of the risk that deposit insurance would stoke moral hazard through encouraging banks to take greater risks.

“I want to assure you that BoU is committed to effective supervision of bank risk-taking, with particular attention to the quality and types of assets that banks acquire as well as the amount of capital that banks hold relative to the risks they take.”

Government last week announced that it had increased the deposit insurance limit from Shs 3m to Shs 10m. This means that in case a bank fails, depositors with money there of up to Shs 10m will be refunded their money.

If one has more than Shs10m there, they would be paid Shs10m. There is fear that banks can use the liberty of there being increased insured deposits to make greater risks, which lead them to fail.

Mutebile said “effective deposit insurance can contribute to financial stability only with strong bank regulation and supervision in place.”

“Deposit insurance is no substitute for effective regulation and supervision of banks,” he added.

The deposit insurance fund is meant to increase confidence in the formal banking system to encourage people to keep their money in formal banks.

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