Bank depositors will be covered for up to $25,000 of their cash in their bank under legislation for a new deposit insurance scheme tabled by Premier and Finance Minister Paula Cox on Friday.Plans for the Island's first such scheme have been in the works since thousands of banks around the world folded in the wake of the 2008 financial crisis.Bermuda has up to now relied on capital requirements to safeguard depositors against the possibility of institutional failure. Butterfield Bank's huge losses from mortgage-backed investments, which led to the bank raising hundreds of millions of dollars of capital in 2009 and 2010, focused local attention on the need for added protection.Financial regulator the Bermuda Monetary Authority (BMA) published a consultation paper on a DIS in September 2010 and the Authority's CEO Jeremy Cox said in February this year that the scheme was set to take effect in 2012.According to the International Association of Deposit Insurers' (IADI) website, 111 countries have a deposit insurance scheme.The legislation is the result of a collaborative effort between financial regulator the Bermuda Monetary Authority (BMA), the Ministry of Finance and the Bermuda Bankers Association (BBA), Ms Cox said.In addition, technical advice was provided by the International Monetary Fund.The deposit insurance scheme (DIS) would “complement the existing supervisory regime thus strengthening the local financial safety net which will help promote financial stability”, she added.“Deposit insurance is a guarantee to depositors in a bank that they will be compensated up to a maximum specified amount of their deposits upon failure of that institution,” Ms Cox said.“The proposed DIS in Bermuda will have three main objectives, which will be to protect small depositors; to promote stability in Bermuda's financial system and economy by providing prompt reimbursement or access to insured depositors' funds and to promote competition between financial institutions in Bermuda.”Under the proposed legislation, membership of the scheme will be compulsory for all relevant financial institutions. The premiums will be paid by the banks as a fixed percentage of insurable deposits.The Bermuda Deposit Insurance Corporation, with an appointed board of directors, will be created to run the scheme. The legislation also entails elements on protection from personal liability and preservation of confidentiality.The Premier said the board would be appointed in the coming months and operational matters developed.The proposed legislative framework for the DIS will be in line with the internationally agreed set of core principles for effective deposit insurance systems put forward by the Basel Committee on Banking Supervision and the IADI.