Lesetja Kganyago: Introducing deposit insurance in South Africa

Address by Mr Lesetja Kganyago, Governor of the South African Reserve Bank, at the launch of the Corporation for Deposit Insurance (CODI), Sandton, Johannesburg, 25 April 2024. 

The views expressed in this speech are those of the speaker and not the view of the BIS.

Thank you for joining us today, to mark the launch of South Africa's deposit insurance scheme.

The big picture is that South Africa is joining a very common practice, globally, of offering deposit insurance. It is a universal business model of banks to fund their assets with borrowed money, and so depositors are actually investors in banks. Usually, we say investors must accept the risks of making investments. But deposits are special, and most governments protect them.

One reason they are special is that hardly any depositors think of themselves as investors in banks. I'm sure more than a few people think their money goes into a vault, and is locked up there until they want it back. But this is not how banking works. And this is one of those rare cases where a naïve view is so widely held that policymakers have ended up shaping the world so that the naïve view is effectively true, and depositors are protected as if their money really were locked up in vaults.

Another reason deposits are special is that they usually have zero maturity, meaning they can be called at any time, and they always retain their face value, meaning if you put R1,000 in you expect to get R1,000 out. This is different from other investment products, like bonds or equities, which have longer maturities and prices that can go up or down.