Plans for bank deposit insurance scheme may be unveiled by as soon as the end of this year.

Speaking after Butterfield Bank announced a $213 million loss last year, Bermuda Monetary Authority chief executive officer Jeremy Cox said the Authority "recognises the prudence and potential benefits of establishing deposit insurance for the banking sector".

Mr. Cox added: "We intend, in conjunction with the Bermuda Government, to develop and introduce a deposit insurance programme for Bermuda's banking sector in 2010.

"Work on this initiative is well under way and we are aiming to finalise proposals by the end of the year."

The Island has no equivalent to the Federal Deposit Insurance Company in the US, which protects $250,000 in customer deposits in the event of bank failure.

Mr. Cox added that he did not believe Butterfield's need to raise more capital just nine months after it had raised $200 million in a Government-guaranteed preference share offering highlighted any weakness in the regulator's stress tests.

All Bermuda's banks underwent a stress test in early 2009 that was designed to calculate the amount of capital needed to be able to withstand losses in a severe downturn and still have six percent of tier 1 (high-quality) capital.

"The capital increases in the first half of last year by Butterfield and other banks were consistent with the Authority's objective," Mr. Cox said.

"Indeed, you will note from Butterfield's press release yesterday that it had a tier 1 ratio of 7.2 percent after the very large losses sustained in 2009, but before the new capital injection, broadly validating the results of the stress test.

"However, while the additional capital served its purpose of helping the bank to absorb its losses, there was equally a need to replenish capital to a level that would meet regulatory requirements and provide reassurance to depositors and to the market.

"This capital injection solidifies the bank's position for the long term, and removes any doubt about the long-term capital position of one of Bermuda's major banking institutions."

Mr. Cox declined to comment on what may have happened had the bank failed to find new capital, saying: "It is not our policy to comment on hypothetical questions."

The BMA sees the new investment in the bank being in the ultimate best interests of both depositors and shareholders," Mr. Cox added.