DEPOSIT INSURANCE COMPANY
During the financial crisis in 1998, the blanket guarantee scheme successfully restored public confidence in the banking system. Nevertheless, this scheme created an additional fiscal burden and was exposed to potential moral hazard. To address these shortcomings, the blanket guarantee scheme was replaced by an explicit and limited deposit insurance scheme operated by the Indonesian Deposit Insurance Corporation (DIC). As stipulated in the Indonesian Deposit Insurance Law (Act No. 24 of 2004), DIC has two key functions: to insure customer deposits and to carry out the resolution of failed banks.
The DIC scheme restricts its coverage to a certain size of deposits in order to reduce the fiscal burden and to minimize moral hazard. Nevertheless, it retains an optimum level of customer protection. Participation by all banks operating in Indonesia, including rural banks, is mandatory. The guarantee covers savings, demand deposits, certificates of deposit, time deposits and deposits in other equivalent form on a per customer, per account basis for each bank.
If a financially distressed bank has deteriorated beyond the point of recovery, DIC will refund insured customer deposits up to the prescribed limit. Recovery of customer deposits not covered by the guarantee will take place through the bank liquidation process. The deposit guarantee scheme operated by DIC is seen as a vital part of the banking infrastructure for preserving public confidence in the banking industry.