Deposit Guarantees

Table of Contents

EU Directive

A 1994 EU directive provides for deposit protection. The rules have been modified and updated in the light of the financial crisis in 2008.

There are harmonised deposit guarantee requirements. Each state must ensure one or more deposit guarantee schemes is introduced. States may exempt institutions belonging to a scheme which ensures the continued operation of its credit institution member.

Completed authorities must apply sanctions if a credit institution is not in compliance with its obligations in relation to the deposit guarantee scheme. The schemes must cover deposits of branches set up by the institutions in other EU states.

Branches of institutions from outside the EU must have equivalent cover to that under the directive. If not, the host state may require that they join the domestic guarantee scheme.

There are provisions whereby depositors must have information relating to the guarantee arrangements for their deposits.

States must ensure that the guarantee is at least €100,000. This must be adjusted for inflation.

The guarantee scheme is to cover the persons beneficially entitled to the deposit. Where more than one party is entitled the benefit of it, the relevant share must be taken into account.

If the deposit is not guaranteed, the depositor must be informed by the credit institution in a clear and accessible manner. Depositors are entitled to information regarding the conditions for compensation on request.

2008 Revision

A European Union directive required states to enact Deposit Guarantee Schemes to protect deposits held in financial institutions. Until September 2008, the schemes covered 80% of the deposited amount up to a maximum of £20,000 pounds. In September 2008 as the financial crisis deepened, the cover was extended to €100,000 per depositor with a hundred percent guarantee. Shortly afterwards, the eligible liabilities guarantee was instituted and rolled over until March 2013.

A deposit protection account was established which was maintained by the Central Bank. It is financed by the various credit institutions. A credit institution must contribute to the scheme in order to carry out business. Incoming credit institutions from other EU states may rely on the cover of their home state scheme.

The purpose and effect of the EU directive was to harmonise these schemes in their court term. The levels of deposit vary. Credit institutions must make available the details of the scheme to their depositors actual and intending. In the case of a branch established in another state, the requisite details of the foreign scheme must be given. The fact of the scheme must not to be advertised without the consent of the Central Bank.

Credit institution Ceases Business

In the event that a credit institution ceases business, the Central Bank may maintain the deposits and contribution towards the scheme provided by the credit institutions in satisfaction or towards satisfaction of the guaranteed deposits. An unavailable deposit is one that is due and payable but has not been paid under its terms by the credit institution.

If the regulator determines that the credit institution appears to be unable to pay the same due to financial circumstances and has no prospect of being able to do so, or a court so determines. In either of these cases, it is deemed unavailable. There are provisions by which the liquidator of a financial institution may apply to the bank for payments. There are provisions for when a court orders repayment of the deposit as a debt to the depositor.

There are time limits in which the Central Bank must make payments provided the applications have been duly made. In broad terms, that is an objective to ensure payments are made within three months. Payments may not be made in respect of persons charged with money laundering offenses.

Under the original regulations as constitute, the recourse had to the amount launched by the relevant credit institution with the deposit protection account maintained by the Central Bank. Where there is a shortfall, the original regulations provided that the amount was to be reduced proportionately.

There are different procedures and provisions applicable to sums ordered to be paid by court order. Where the deposit is maintained in another state, the amount paid is that provided by the regulation or an equivalent amount that which would have been paid to the person under the Deposit Guarantee Scheme established in that other state.

Eligible Deposits

The regulations cover so-called eligible deposits. These include deposits and current accounts representing the total liability of the credit institution to every such person within offices within the EU together with interest up to the date of determination.

Excluded are interbank deposits, negotiable certificates of deposit, deposits held by an excluded depositor’s own fund, money laundering, monies deposits for which the depositor on an individual basis obtained from the same credit institution rates and financial concessions which have helped to aggravate its financial situation.

Certain deposits by insurers, state authorities and local governments and municipal authorities, deposits by certain collective investment schemes, deposits by companies that are not small companies for the purpose of the company’s accounts regulations. They is deducted from the deposits amounts owing by way of set-off to the relevant institution.

A depositor may be excluded by being connected to certain excluded depositors or being a trustee for their benefit. A court may set aside and exclusion or deduction if it would be just and equitable, if the bank is of the opinion that the exclusion would be just and equitable, it may apply to court for such an order.

Trust Accounts

Where the account is a trust account for the benefit of others and the beneficiaries of the trust concerned are beneficially entitled against the trustees to an identifiable part of the amount, either absolutely or jointly with a fixed number of other beneficiaries, then the amount to which the beneficiary is entitles shall be treated as if it were a separate deposit account in the legal and beneficial ownership of the beneficiary for the purpose of the appropriate calculation.

Where the beneficiary is entitled jointly with a number of other beneficiaries, it is treated as if it was deposited in a separate account in the nature of a joint account by the beneficiaries. It is presumed that jointly held deposits are held proportionately by the owners for the purpose of various caps. A deposit by a partnership is treated as a single deposit.

Charge on Fund

The Central Bank may at its discretion to such an extent that it deems proper from time-to-time charge on the deposit protection account, any other payment out of the general fund which is in the opinion of the bank applied to protect the interest of persons of a class maintaining deposits with one or more credit institutions authorised or formerly authorised or to promote the orderly or proper regulation of banking. The bank is to keep the government and credit institutions informed of the general principles which guide the bank in respect of that exercise of its discretion and consider representations made by credit institutions authorised by the bank.

The special liquidator verifies the amount of deposits eligible for compensation, accrued interest may form part of the payment but subject to the overall cap. Loans which are in default may be set-off against deposit.

The scheme remains funded by the Central Bank. The Financial Services Deposit Guarantee Scheme Act 2009 provides for the maintenance of the account. Financial institutions are obliged to contribute up to 0.2% of their total liabilities.

Medium and Large Companies

The scheme was increased to €100,000 in 2008 without a percentage limitation. Medium and large companies under companies accounts regulations remain ineligible. Deposits owned by current directors and senior managers of the bank or building society in default are not protected. The scheme does not protect public authorities, insurers, pension schemes, retirement funds, collective investment schemes, banks.

To qualify as a small company it must satisfy two of the following tests, balance sheet less than 4.4 million, turnover less than 8.8 million, average employees less than 50. The maximum compensation is €100,000 per person per institution. This is based on the balance on accounts of the defaulting institution at the date of default. All balances including those held as trustee are jointly are aggregated.

Eligile Liabilites Guaratee 2008-2010

The Eligible Liabilities Guarantee was made under the Credit Institutions Financial Support Act 2008. The scheme was open to participation, institutions were systematically important and sovereign credit institutions or their subsidiaries that applied to join and satisfy the criteria. The institution themselves were deemed to give — obliged to give account or indemnity to the Minister in respect of liabilities incurred. Parent undertakings could be required to give the indemnity.

The Minister for Finance stands as guarantor of guaranteed liabilities of a participation institution subject to the terms of the scheme. The Eligible Liability Guarantee given by the Minister was to be unconditional, irrevocable, and provide for timely payment. The guarantee subject to the below restrictions apply to deposits to the extent that they were not covered under the deposit protection scheme in the state or any other jurisdiction incurred by a participating institution from the time it become the participating institution.

Eligible Liabilities include at the deposits to the extent not protected by deposit schemes, senior unsecured certificates of deposits, senior unsecured commercial paper, other senior unsecured bonds and notes, other senior unsecured debts, subject to EU state aid approval satisfying eligibility criteria.

The liability must not have the maturity of more than five years. It must be incurred within the period to 29 September 2010. The liabilities were not eligible if the — other than deposits if they could be defaulted by cross-default or cross acceleration. They were to be denominated in the euro, sterling, US dollars or other currency approved by the Minister. The Minister has the discretion to issue Eligible Liability Guarantee Certificates in respect of eligible liability — liability. Institutions could apply for Eligible Liability Guarantee and a certificate was not required in order for a deposit to be guaranteed.

The decision to issue an Eligible Liability Guarantee certificate was at the sole discretion of the Minister. The Minister was entitled in the circumstances if he was of the view that the objectives of the scheme required it not to issue further Eligible Liability Guarantee certificates to a particular institution in respect of liabilities other than the deposits and or require the institution to cease issuing eligible liabilities pursuant to the particular guarantee program.

Conditions

A fee is payable to the Minister by each participating institution. The fee applicable was to be based on calculations as advised by the Minister from time to time based on benefits obtained by the institution.

The Minister was entitled to impose, commercial conduct requirements on the institution as a condition of membership of the scheme. This could include requirements in relation to transparency and reporting requirements.

The Minister is entitled to direct a participating institution to restructure to ensure compliance with the scheme. This may require changes in the institution’s solvency ratio.

If the institution breached the conditions of the scheme, additional conditions might be imposed and fees might be increased as well as the possibility of other action being taken.

In the event of a default by a participating institution in discharging a guaranteed liability when a demand for payment under the scheme is made in writing in the form prescribed by the Minister and delivered to the addressee. The Ministers have tried to make timely repayment in respect of valid demand for payment under the scheme. The payment is deemed to be made to the ultimate beneficiary of the liability and discharged the Minister.

Each institution is governed by rules applicable to the scheme. This included obligations in respect of reporting and consultation and ongoing counter indemnity, payment of fees, limitations regarding the terms of the website.

On 7 September 2010, the scheme was extended from 29^th September 2010 to 31^st December 2010. With the EU consent, it was further extended for the years 2011 and 2012 where deposits, were less than the requisite number of years but expired after the relevant date. They continued to be guaranteed provided they originally qualified. Banks were given the opportunity of offering unguaranteed deposits.

Termination of Scheme

The scheme ended on 28^th March 2013, shortly after the liquidation of Irish Bank Resolution Corporation, former Anglo Irish Bank, and INBS. The depositors of that institutions were left to claim sums due to them under the Deposit Guarantee Scheme and the Eligible Liabilities Guarantee after the expiry of the eligible liabilities guarantee, the Deposit Guarantee Scheme continues at the rate of €100,000 per depositor per institution.

The Eligible Liabilities Guarantee scheme covered a limited number of institutions in particular Anglo-Irish Bank. AIB and various entities within it, AIB and various associated entities, Permanent bank — Irish Permanent including Bank of Ireland, Mortgage Bank of Ireland (UK) plc, AIB (UK) plc. With effect from 28 March, 2013 deposits are not covered under the scheme. No new deposits are covered under the scheme.

Demand deposits over €100,000 ceased to quantify on 28^th March 2013. Fixed-term deposits made before 28^th March 2013 for five years or less remain covered until thematurity date.

The scheme was withdrawn for UK deposits for various banks in March and August 2012. The ELG Scheme applied to all the corporate and institutional deposits.

2014 Scheme

The Eligible Liabilities Guarantee ceased to apply for new deposits after 28 March 2013. It applied to qualifying deposits for a maximum of five years.

The current deposit guarantee is based on an EU Directive made in 2014 and is administered by the Irish Central Bank. Banks must be members of the scheme. If they fail to do so, they may be precluded from taking deposits.

The scheme primarily applies to retail deposits, excluding interbank deposits, banks’ own funds held by investment funds, public authorities’ debt securities issued by the bank, and precludes monies lodged by persons convicted of money laundering offenses.

Pension funds and retirement funds are not included when made by institutional depositors. Deposits by the trustees of small self-administered pension funds are covered.

The Irish scheme covers deposits with new branches of Irish authorised banks, as well as deposits of banks within Ireland. Banks are to identify deposits protected by the scheme. Customers must be provided with information about the availability of the scheme and how it operates.

The deposit cover is up to €100,000 for each depositor. Deposits by partnerships and associations are deemed a single deposit.Deposits of temporary high balances up to €1 million per six months are protected.

Joint deposits are presumed to be repaid equally. The €100,000 is an aggregate per depositor. The amount is fixed at the date of insolvency, such as the appointment of a liquidator or examiner, or by the date the Central Bank decides that the bank is not able to meet its liabilities to depositors.

Payment is to be made within seven working days of the determination by the Central Bank or court.

The deposit guarantee fund has established contributions by authorised banks. Later, extraordinary contributions may be required. The deposit fund aims to reach a target of .8% of covered deposits by 2024.

For low credit risk, banks may be designated by the Department of Finance and be eligible to make a lower level of contribution.