But the IMF suggested the Central Bank should not introduce deposit insurance until preconditions for effective banking supervision are in place.
The introduction of the scheme should be timed when all banks are able to meet regulatory capital requirements, risk-focused supervision has been effectively implemented, and supervisory independence is assured, the IMF said in a new assessment of the island's financial system stability.
"There are a high number of small depositors in the system, and introduction of a credible deposit insurance scheme could lessen the moral hazard," it said.
The moral hazard of deposit insurance is that depositors will go for riskier banks with high interest because of the insurance