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Deposit-guarantee schemes

The European Union aims to protect the depositors of all credit institutions and to safeguard the stability of the banking system as a whole.

ACT

Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes [See amending acts].

SUMMARY

Deposit * protection is a key aspect of completion of the internal market and forms an essential counterpart to the prudential supervision of credit institutions * because of the solidarity it creates between all the institutions operating in the same financial market in the event of failure of one of them.

Harmonisation

Harmonisation must, within a very short period, ensure payments under a guarantee calculated on the basis of a harmonised level. Deposit-guarantee schemes must intervene as soon as deposits become unavailable.

In principle this Directive requires every credit institution to join a deposit-guarantee scheme.

Certain deposits and all instruments which would fall within the definition of "own funds" of credit institutions are excluded from any repayment by guarantee schemes.

The Directive requires each Member State to ensure that within its territory one or more deposit -guarantee schemes are introduced and officially recognised. However, if certain conditions are satisfied - including equivalent protection for depositors - a Member State may exempt a credit institution from belonging to a deposit-guarantee scheme where that credit institution belongs to a scheme which ensures the continued operation of its member institutions.

The Directive lays down the procedure to be followed where a credit institution does not comply with the obligations incumbent on it as a member of a deposit-guarantee scheme, namely that the competent authorities take all appropriate measures, including sanctions going as far as withdrawal of the credit institution's authorisation, to ensure it complies with its obligations.

Deposit-guarantee schemes introduced and officially recognised in a Member State must cover the depositors at branches * set up by credit institutions in other Member States.

Deposits held when the authorisation of a credit institution is withdrawn will continue to be covered by the guarantee scheme.

Branches established by a credit institution which has its head office outside the Community must have cover (and be given information) equivalent to that prescribed by the Directive; failing that, host Member States may require them to join deposit-guarantee schemes in operation within their territory. However, such branches must provide actual and intending depositors with information concerning the guarantee arrangements covering their deposits.

Amounts of deposit guarantees

Member States should ensure that the guarantee for all deposits for the same depositor is at least EUR 50 000 in the event of deposits being unavailable. The Directive provides that Member States should fix this amount at EUR 100 000 by 31 December 2010, unless the Commission sets reserves in the report which it is to present at the end of 2009.

The Commission may adapt these amounts according to inflation in the European Union, by referring to the harmonised index of consumer prices.

Beneficiary of the guarantee

Where the depositor is not absolutely entitled to the sums held in an account, it is normally the person who is absolutely entitled who is covered by the guarantee; if there are several persons who are absolutely entitled, the share of each must be taken into account. This does not apply to collective investment undertakings.

Available information

The Directive stipulates the information to be made available to depositors. This information contains the provisions of the deposit-guarantee scheme or any alternative arrangement applicable, including the amount and extent of the cover offered by the deposit-guarantee scheme. In the event that a deposit is not guaranteed by a deposit-guarantee scheme, the depositor must be informed of this by their credit establishment. Information provided must be clear and accessible.

Depositors can obtain information about compensation conditions on request.

Time limits/delays

Duly verified claims must be paid within three months (twenty working days from the end of 2010) of the date on which the competent authorities establish that deposits are unavailable. This time limit of not more six months (ten working days from the end of 2010) may be extended in exceptional circumstances and in specific cases.

Monitoring

The Commission is to present a report before the end of 2009 on the following questions:

  • the effects of the absence of harmonisation of the funding mechanisms of deposit-guarantee schemes in the event of a cross-border crisis;
  • the appropriateness and modalities of providing full coverage for certain account balances;
  • possible models for introducing risk-based contributions;
  • the practical consequences of a possible introduction of a Community deposit-guarantee scheme;
  • the impact of the absence of harmonised legislation on set-off where a depositor’s credit is balanced against their debts;
  • the effects of the harmonisation of the scope of products and depositors covered;
  • the link between deposit –guarantee schemes and alternative means for reimbursing depositors.

Context

Directive 94/19/EC allows savers to benefit from basic cover for their deposits. However, the financial crisis which started in October 2008 has generated many uncertainties with regard to the guaranteeing of deposits. It is therefore urgent to strengthen this cover by increasing the level of minimum guarantee and laying the foundations of a Community deposit-guarantee framework.

Key terms used in the act
  • Deposit: any credit balance which results from funds left in an account or from temporary situations deriving from normal banking transactions and which a credit institution must repay under the legal and contractual conditions applicable, and any debt evidenced by a certificate issued by a credit institution. Shares in United Kingdom and Irish building societies apart from those of a capital nature covered in Article 2 are treated as deposits. Bonds which satisfy the conditions prescribed in Article 22(4) of Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (Ucits) are not considered deposits. For the purpose of calculating a credit balance, Member States must apply the rules and regulations relating to set-off and counterclaims according to the legal and contractual conditions applicable to a deposit.
  • Credit institution: an undertaking the business of which is to receive deposits or other repayable funds from the public and to grant credits for its own account.
  • Branch: a place of business which forms a legally dependent part of a credit institution and which conducts directly all or some of the operations inherent in the business of credit institutions; any number of branches set up in the same Member State by a credit institution which has its head office in another Member State are regarded as a single branch.

REFERENCES

ActEntry into forceDeadline for transposition in the Member StatesOfficial Journal

Directive 94/19/EC

31.5.1994

1.7.1995

OJ L 135 of 31.5.1994

Amending act(s)Entry into forceDeadline for transposition in the Member StatesOfficial Journal
Directive 2005/1/EC [COD/2003/0263]

13.4.2005

13.5.2005

OJ L 79 of 24.3.2005

Directive 2009/14/EC

16.3.2009

30.6.2009

OJ L 68 of 13.3.2009

Last updated: 08.06.2009
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