What are deposit guarantee schemes?
Deposit guarantee schemes (DGS) are systems in each member state that reimburse depositors (up to a defined limit) if their bank fails and deposits become unavailable. How deposit guarantee scheme works All banks must become members of such a scheme. The member banks pay contributions based on their risk profile and other factors. The guarantee scheme accumulates the contributions in a fund. Where a bank fails and deposits become unavailable, the guarantee schemes must be in a position to reimburse depositors holding any type of deposit protected under the directive. In order to ensure that all guarantee schemes in the member states fulfil their duties, stress tests are performed at least every 3 years. DGSs are required to have sound and transparent governance practices.
Who is covered by deposit guarantee schemes?
According to the rules, all depositors, whether individuals or companies, have their deposits protected up to an amount of €100 000 per bank by the guarantee scheme of which their bank is a member. Other protected deposits include: • pension schemes of small and medium-sized businesses • deposits by public authorities with budgets of less than €500 000 • deposits of over €100 000 for certain housing and social purposes The guarantee schemes are also able to finance resolution of banks (in accordance with the EU bank recovery and resolution rules) and - subject to strict conditions - to prevent the failure of a bank. Time limit for pay-outs to depositors From mid-2015 depositors are to be reimbursed within a maximum of 20 working days. This time limit will be gradually reduced to 7 working days by 2024. At a depositor's request, an emergency amount may made be available earlier if a deposit guarantee scheme is unable to reimburse depositors within the 7 day time-limit during the transitional period which ends on 31 December 2023.
Who finances deposit guarantee schemes?
The funds of deposit guarantee schemes come from the banking sector. The amount of the payment is partly determined by bank's risk profile: the higher the risks a bank takes, the larger the contribution it has to pay into the fund. The level of these funds should amount to 0.8% of covered deposits in each member state by 2025. The funds are held in low risk assets so that that they are available in case a bank fails or is likely to fail. In addition, there is a possibility for deposit guarantee schemes to borrow from each other, in case of need and where a number of requirements are met. Improved information for depositors Depositors will receive more, simpler and clearer information from their bank about the level of their deposit protection before they sign up to a new deposit contract.
The most important elements of the 1994 directive on deposit guarantee schemes (Directive 94/19/EC) were amended in 2009 in response to the 2008 financial crisis. The coverage level was increased from €20 000 to €50 000, and later to €100 000. The time limit for pay-outs was reduced from 3 months (extendable to 9) to 20 working days (extendable to 30 working days). The amendments adopted in 2014 were proposed by the Commission in 2010. The 1994 directive is replaced and repealed by the new framework.
Entry into force
Directive 2014/49/EU - Deposit Guarantee Schemes Directive (DGSD) entered into force in June 2014. Member states were required to implement the directive into their national law within one year after the entry into force of the directive.