GREAT BAY--The Dutch government is preparing a financial guarantee framework to support the deposit guarantee system for Saba, Statia and Bonaire, aimed at protecting deposit holders and strengthening financial stability in those islands. The measure forms part of the updated Deposit Guarantee Scheme for the BES islands, which took effect on January 1, 2025.
The revised system was introduced after an evaluation of the previous arrangement found that it did not sufficiently contribute to financial stability or consumer protection. Under the new ex-ante model, banks contribute proportionally to an external fund held in a separate foundation. That fund is intended to provide the first source of financing in the event of a bank failure. Its target size is approximately US$12 million.
To reinforce the system, the Dutch government is preparing a credit facility through the Caribbean Netherlands Tax Administration, backed by a government guarantee of up to €30 million. This backstop is meant to ensure that the deposit guarantee fund has sufficient resources available if the fund itself proves inadequate following the failure of a bank in Saba, Statia or Bonaire.
The guarantee scheme protects deposits up to US$25,000 per account holder per bank. According to the framework, that level covers about 98 percent of account holders, which is described as comparable to the protection level in the European Netherlands, despite the lower monetary cap. The document notes that the structure of the economies in Saba, Statia and Bonaire differs from that of the European Netherlands, and that the coverage level must be assessed in that context.
Officials state that the deposit guarantee system plays both a protective and preventive role. In addition to safeguarding deposit holders when a bank fails, it is also intended to reduce the risk of a bank run by reassuring customers that a defined portion of their savings is protected.
The framework explains that the Dutch Minister of Finance considers the matter a government responsibility because of the need to safeguard the proper functioning of payments systems and financial markets in Saba, Statia and Bonaire, which form part of the Netherlands. Authorities also argue that a commercial credit arrangement would likely be impractical because few local parties could assume the risk, and any such financing would likely come at an unsustainable cost for the small banking sector.
Under the proposed arrangement, the new €30 million guarantee replaces a previous guarantee scheme valued at €72 million. The reduction reflects the existence of the new externally funded reserve, which will be tapped first before any government-backed credit is needed.
The document stresses that the risk to the Dutch state would arise only in exceptional circumstances, specifically in the event of a bank failure where the fund does not contain enough money to cover deposit payouts. The framework notes that the proposed credit line would be sufficient to cover the failure of one of the smaller banks operating in Saba, Statia and Bonaire. More extreme scenarios, such as multiple simultaneous bank failures, fall outside the scope of the guarantee and would require separate consideration.
The framework also notes that there are currently no indications of concerns regarding the solidity of banks operating in Saba, Statia and Bonaire. It adds that the largest institution, holding about 70 percent of deposits, is regarded as solid and is under prudential supervision by De Nederlandsche Bank. Other banks operating in the three islands are branches of banks from Curaçao and St. Maarten and fall under the prudential supervision of the Central Bank of Curaçao and St. Maarten.
According to the document, the banking sector itself remains financially responsible for the system. If the credit line is ever used, the sector would be required to make additional mandatory contributions to repay the borrowing. Interest would also be charged on the amount drawn, based on the prevailing 10-year U.S. Treasury rate plus a 50-basis-point risk surcharge.
No annual premium will be charged for the government guarantee itself. The framework says the expected premium, estimated at €30,000 per year, would be so low that the administrative cost of collecting it would outweigh the benefit.
The guarantee arrangement is expected to be reviewed after five years, in part because of the economic development of the islands and the possibility of changes in the regional banking landscape, including the possible arrival of a European bank in the Windward Islands.
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