Deposit guarantee schemes

KEY POINTS

• Deposit guarantee schemes (DGSs) are an essential counterpart to the prudential supervision of credit institutions, such as banks, in creating solidarity between all the institutions operating in the same financial market in the event that one of them fails.
• Each EU country must introduce laws to ensure that:
  • one or more DGSs are set up on their territory and that all banks are required to join them;
  • there is a harmonised level of protection for depositors.

Coverage level

• Deposits are covered per depositor per bank. This means that the limit of € 100,000 applies to all aggregated accounts at the same bank. For joint accounts (e.g. belonging to a couple), the € 100 ,000 limit applies to each depositor.
• Some deposits — such as those linked to life events such as marriage, divorce, retirement, redundancy, invalidity or death — may be protected above € 100,000 for a limited period of time (at least 3 months and no more than 12 months).

Beneficiaries of the guarantee

• DGSs protect all deposits held by individuals and companies whatever their size.
• Deposits of financial institutions and authorities are not covered (except for small local authorities).
• Deposits in non-EU currencies are also covered, which is important for small and medium-sized companies active in several countries.

Repayment

• Repayment deadlines will gradually be cut from the current 20 working days to 7 in 3 phases:
  • 15 working days from 2019;
  • 10 working days from 2021;
  • 7 working days from 2024.
• During the transitional period, depositors in need may ask for a ‘social payout’, which is a limited amount to cover their costs of living.
• Depositors at bank branches in another EU country are paid by the DGS in that country (host DGS), acting as a ‘single point of contact’ on behalf of the home DGS.

Financing of deposit guarantee schemes

• The law confirms the fundamental principle underpinning DGSs: they have to be financed by banks. Contributions to DGSs reflect individual banks’ risk profiles, i.e. more risky banks have to pay more.
• It requires EU countries to ensure that, by 3 July 2024, the available financial means of a DGS reaches a target level of at least 0.8 % of the amount of the covered deposits of its members (or about € 55 billion).

Use of funds

• In principle, DGS funds are to be used to reimburse depositors after a bank failure. They may also be used, under strict conditions, for early intervention to prevent a bank’s failure or for some bank resolution measures, for example the transfer of deposits from a failing bank to another bank.

Depositor information

• The law improves the standard of information given to depositors on the protection of their deposits. Banks have to provide account holders with clear information on depositor protection annually.