If your bank collapses, what happens to your money?

Here is an important question that many customers rarely ask. Did your bank ever explain to you about the Bank Deposit Insurance Scheme (BDIS)? As a customer or a member of the public, how much do you really know about BDIS and the protection it provides? Many people deposit their life savings in banks without fully understanding what would happen if the bank faced financial failure.
Imagine a scenario in which you have deposited RO 1 million in your account. If that bank suddenly becomes bankrupt, will you receive your entire money back? Did the bank ever clearly explain this risk to you when you opened the account?
The same question applies from another perspective. Suppose you have a loan or liability of RO 50,000 with a bank that collapses financially. Would the bank automatically write off the loan, or would the liability still exist through legal recovery processes? These are important financial realities that depositors and borrowers should understand clearly.
Depositors have the right to know how their money is protected, and banks have a responsibility to educate customers about these protections. Public awareness about deposit insurance should not remain hidden within technical regulatory documents; it should be communicated openly and transparently to customers.
The global financial environment today reminds us that banking stability cannot always be taken for granted. Economic uncertainty, geopolitical tensions, and regional conflicts can all affect financial institutions.
In recent years, the global banking industry has experienced structural changes and strategic withdrawals from certain markets. Several international banks have reduced their presence or closed branches in parts of the Gulf region, including in cities such as Dubai, Bahrain and Qatar.
Reports published by Gulf News and Reuters have highlighted how global banks like Citibank and HSBC have adjusted their regional operations due to strategic restructuring and changing financial priorities. While these developments do not necessarily indicate financial failure, they illustrate how banking institutions constantly face economic pressures and evolving market conditions.
History also reminds us that bank failures are not impossible. One of the most notable examples in global banking history is the collapse of the Bank of Credit and Commerce International (BCCI) in 1991.
BCCI operated across more than seventy countries and held billions of dollars in deposits from individuals and businesses. When massive fraud and financial irregularities were uncovered, regulators shut down the bank worldwide.
Thousands of customers suddenly lost access to their deposits, and the collapse caused widespread financial hardship. Events like these demonstrate why strong financial regulation and deposit protection mechanisms are essential to maintain public confidence in the banking system.
Recognising the importance of depositor protection, Oman introduced the Bank Deposit Insurance Scheme (BDIS) to strengthen financial stability and protect bank customers. The scheme was established through Royal Decree No 09/95 issued on March 26, 1995.
Later amendments were introduced through Royal Decree No 111/2000 issued on November 15, 2000 and Royal Decree No 70/2010 issued on May 26, 2010 to enhance the effectiveness of the system and adapt it to evolving financial conditions. The scheme operates under the supervision of the Central Bank of Oman and aims to provide compensation to depositors if a licensed bank becomes unable to meet its financial obligations.
The fundamental objective of the BDIS is to protect depositors and maintain public confidence in the banking system. If a participating bank becomes insolvent, the scheme compensates depositors up to a specified insured limit determined by the regulatory authorities.
This mechanism ensures that small depositors and ordinary customers are protected from losing their entire savings if a bank fails. By guaranteeing part of the deposits, BDIS also prevents panic withdrawals that could otherwise destabilise the banking system.
Despite the existence of such an important protection mechanism, many customers remain unaware of how the scheme actually works. Few depositors know the exact coverage limit, the types of accounts covered, or the process through which compensation would be paid in case of a bank failure.
This lack of awareness raises an important question about financial literacy and transparency within the banking sector. Banks, regulators, and policymakers must work together to ensure that customers clearly understand their rights and protections under the deposit insurance framework.
At a time when global financial markets are influenced by political conflicts, economic uncertainty, and rapid technological change, building strong public confidence in the banking system is essential. Deposit insurance schemes like BDIS play a vital role in strengthening that confidence. They act as a safety net that protects depositors, stabilises financial institutions, and preserves trust in the national financial system.

Mohammed Anwar Al Balushi The author works at UTAS