The European Union aims to protect the depositors of all credit institutions and to safeguard the stability of the banking system as a whole.
Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes
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 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Deposits held when the authorisation of a credit institution is withdrawn will continue to be covered by the guarantee scheme.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.
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.
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.
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.
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.
Updated Deposit guarantee schemes
Directive 2014/49/EU on deposit guarantee schemes to protect depositors of credit institutions
It seeks to protect depositors of all credit institutions, as well as to safeguard the stability of the European Union (EU) banking system as a whole.
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.
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 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.
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.
EU countries had to incorporate it into national law by 3 July 2015.
Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes (OJ L 173, 12.6.2014, pp. 149-178)
Successive amendments to Directive 2014/49/EU have been incorporated in the original text. This consolidated version is of documentary value only.
Investor compensation schemes
To protect investors following the failure of an investment firm.
European Parliament and Council Directive 97/9/EC of 3 March 1997 on investor-compensation schemes.
The Directive requires Member States to set up one or more investor compensation schemes. All investment firms supplying investment services must belong to such a scheme (credit institutions may be exempted provided that they already belong to a scheme which guarantees protection at least equivalent to that provided under a compensation scheme and that they fulfil certain specific conditions).
The compensation scheme operates where:
- the competent authorities have determined that in their view an investment firm appears, for the time being, to be unable to meet its obligations arising out of investors’ claims and has no early prospect of being able to do so; or
- a judicial authority has made a ruling which has the effect of suspending investors’ ability to make claims against an investment firm.
Cover has to be provided for claims arising out of an investment firm’s inability to:
- repay money owed to or belonging to investors and held on their behalf in connection with investment business; or
- return to investors any instruments belonging to them and held, administered or managed on their behalf in connection with investment business.
Where an investment firm is also a credit institution, the Member State of origin decides which Directive should apply to money claims: the above-mentioned Directive or that governing deposit-guarantee schemes. No claim in respect of a single amount is eligible for compensation under both Directives.
The Directive sets a Community minimum level of compensation per investor of Euro 20 000, while at the same time authorising Member States to provide for a higher level of compensation if they so wish. However, certain categories of investors may be excluded by Member States from the scheme’s coverage or may be afforded a lower level of coverage. The arrangements for organising and financing schemes are left to the discretion of Member States.
There are procedures to be followed where an investment firm fails to comply with the obligations incumbent on it as a member of a scheme (penalties ranging up to exclusion).
Provision is made for branches of investment firms to join compensation schemes in host Member States if they so wish.
The coverage applies to the investor’s aggregate claim, irrespective of the number of accounts, the currency and the location in the Community. In the case of joint investment business, claims are divided equally amongst investors.
The compensation scheme may fix a period during which investors must submit their claims. The fact that that period has expired may not, however, be invoked by the scheme to deny cover to an investor. An investor’s claim must be met within a maximum of three months of the establishment of the eligibility and the amount of the claim.
Obligations are laid down regarding information that must be supplied to investors.
The Commission is required to present a report on the application of the Directive by 31 December 1999 at the latest.
|Act||Entry into force||Deadline for transposition in the Member States||Official Journal|
|Directive 97/9/EC||26.3.1997||26.9.1998||OJ L 84 of 26.3.1997|
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