Annexes to COM(2010)369 - Review of Directive 94/19/EC on Deposit Guarantee Schemes

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dossier COM(2010)369 - Review of Directive 94/19/EC on Deposit Guarantee Schemes.
document COM(2010)369 EN
date July 12, 2010
Annex) should be considered as the first step to establishing a single pan-EU scheme in the future. It should be noted that the introduction of a pan-EU scheme presupposes full harmonisation of Deposit Guarantee Schemes and could therefore only enter into force after the target level for their funds of 1.5% of eligible deposits has been reached.

A pan-EU Deposit Guarantee Scheme of whatever structure should comprise all banks. Any other option would be potentially distortive and would seem inconsistent with the Internal Market.

4. Emergency payout

The Commission proposes to reduce the payout period to seven days. However, emergency payout has not been identified as a preferable option.

Fast payment of a certain amount in advance (e.g. € 10 000 in three days) while retaining the current payout period (i.e. four to six weeks) for amounts above € 10 000 would require Deposit Guarantee Schemes to pay out twice and the costs (stemming from human and technical resources) would likely almost double as well. Fast payout without proper verification of claims (due to time pressure) could result in a higher than normal rate of erroneous payments. It would result in further costs for Deposit Guarantee Schemes because of the resources required to recover erroneously paid money. It could be very difficult in practice and time consuming, as it would likely force schemes to challenge claims before the courts. An ‘emergency payout’ could also be detrimental to depositor confidence, as it would send a very negative market signal to depositors. Depositors who only receive part of their deposits on short notice may believe that the Deposit Guarantee Scheme does not have sufficient funds to pay the whole amount and may thereby cause a run on banks by trying to withdraw all their deposits.

Therefore, an ‘emergency payout’ would be cost-inefficient and could undermine depositor confidence. If a Deposit Guarantee Scheme can pay out € 10 000 after three days, it should also be able to pay out € 100 000 within a short deadline if it is soundly financed. It is much more efficient to ensure the necessary conditions to achieve a much faster standard payout as set out in the Commission’s legislative proposal.

5. Deposit guarantee and bank resolution (alternatives to payout)

The alternative to triggering Deposit Guarantee Schemes and liquidating the bank would be bank resolution (i.e. organising an orderly failure) that entails continuity of banking services, so that depositors have continuous access to their funds. In particular, deposits may be transferred to another bank.

However, the Directive on Deposit Guarantee Schemes should not be too prescriptive on such alternatives to payout since bank resolution is the subject of separate communications [2] paving the way for a forthcoming legislative proposal. The proposal on Deposit Guarantee Schemes should not anticipate the ongoing work on bank resolution, nor on the other hand should progress on Deposit Guarantee Schemes be delayed by further developments in this field. A good solution would be to ensure that the Directive on Deposit Guarantee Schemes remains adaptable to changes arising from further work on bank resolution. Consequently, the Commission proposes that the cost to Deposit Guarantee Schemes of transferring deposits as a resolution measure should not exceed the cost of reimbursing depositors.

If Deposit Guarantee Schemes had a broader mandate, i.e. including early intervention measures (e.g. recapitalization, liquidity assistance, guarantees), they would need to be adequately funded. Additional funds would need to be collected beyond the target level. This is because bank resolution is an alternative to payout while early intervention does not always prevent a payout later on. For this reason, Deposit Guarantee Schemes should only to a limited extent be allowed to use their financial means in order to avoid a bank failure without being restricted to financing the transfer of deposits.

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Annex: An outline of financing elements in an ‘EU network of Deposit Guarantee Schemes’ subject to mutual borrowing

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Source: Commission services.

[1] In Norway, the (converted) coverage level amounts to more than € 240 000.

[2] See COM(2009) 561 and COM(2010) 254.

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