Investments

Why Would Someone Want to Bank in the Dominican Republic?
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Is Banking Safe, or in the least Insured, in the Dominican Republic?

The most common question we see from readers involves the safety of bank deposits in the Dominican Republic.  Americans especially point to the US government run FDIC insurance program as a benchmark to compare the rest of the world to.  My advice is to understand what you are trying to compare or ask.  FDIC was broke during the early 1990’s due to bank failures in the late 1980’s (which by the way was a point in time most people would deem to be decent or positive economically speaking).  The link to this information is below.
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The point is, FDIC is one of the most miserably run insurance programs and if it were a private insurance company, would have been out of business due to insolvency a very recent 10 years ago.  Considering that the late 1980’s were not a time many would term a severe economic depression, and less than 20% of US banks folded up causing FDIC to become insolvent, what might the case be for a real bad US economic crisis?  If the system goes broke with less than 20%, what will happen if 30% go belly-up?  Americans probably sleep better seeing that little FDIC sign on the bank door, but the reality is truly something very different than the hype or promotion.  You are correct if you say, It is better than nothing.  However, one should compare apples to apples when looking at foreign banks and how much is kept on reserve to cover failed banking institutions.  In many countries, the Central Bank of the country is charged (as is the case in the Dominican Republic) with this responsibility and the reserve requirement is often as high as 5% or more of each bank’s deposits.  In other words, which number is greater, 5% or 1.38%?  (See the FDIC information below, whereby in reality only 1.38% is in reserve for the entire insured number of banking deposits as of 1998 figures).
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What about FDIC, with it’s US$ 29 Billion Dollars (1998 figures) in the bank insurance fund account?  Well, according to FDIC statistics, there are 77 commercial banks with US$ 10 Billion Dollars or more on deposit.  This means it only takes 3 out of these 77 very large banks to fail, and the FDIC insurance fund is wiped out once again (See 1991 & 1992 statistics regarding the insolvency of FDIC).  How many Americans knew that the FDIC Bank Insurance Fund (BIF) was broke in 1991, to the tune of negative US$7 Billion Dollars and also broke in 1992 to the tune of US$ 100 Million Dollars?  Not only was the bank insurance fund insolvent in these years, it was in debt!  And this was not so long ago.