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The EU Frameworkfor Deposit Guarantee Schemes
Raluca Painter
European Commission
Senior Policy Officer, Financial Stability Unit
21/09/2014
Background: key steps
Directive 94/19/EC of 30 May 1994 on DGS
Directive 2009/14/EC amending Directive 94/19/EC as regards the coverage level and pay-out delay
July 2010 Commission proposal for a comprehensive revision of
Directive 94/19/EC
16 April 2014 EP Plenary vote (second reading)
Directive 2014/49/EU on DGS entered into force on 2 July 2014
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Key features of Directive 2014/49/EU
Harmonises and simplifies the previous Directive
Aims at improving the protection of deposits, maintainingdepositor confidence, and strengthening the safety net.
The new funding requirements will ensure that DGS will beable to fulfil their obligations towards depositors.
A faster access to deposits after a bank failure shouldstabilise the confidence of depositors and ensure financialstability.
21/09/2014 3
Level of coverage
Harmonised level of € 100 000 per depositor per bankapplicable in all Member States and EEA countries
No separate coverage per different brands of the same bank
Temporary high deposit balances: Member States shall ensure coverage above € 100 000 for deposits arising from housing transactions (e.g. sale of residence) or from specific life events (e.g. marriage, divorce, inheritance)
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Payout deadline
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Original from 1994 3-9 months
Past from March 2009 3 months
Present from 2011 4-6 weeks
Future from 2024 7 working days
Payout deadline
Payout deadline will be gradually reduced from the current 20 working days to 7 working days in three phases:
15 working days – from 2019
10 working days – from 2021
7 working days – from 2024
During the transitional period (until end-2023), depositors in need may ask for so-called "social payout", i.e. limited amount to cover their costs of living to be paid within 5 working days
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Ex-ante funding (at least 0.8% of covered deposits)
to be reached by Member States within 10 years
Risked based contributions mandatory for all Member States
Extraordinary (ex-post) contributions(up to 0.5% of covered deposits annually)
Mutual borrowing facility
on a voluntary basis(up to 0.5% of covered deposits
of the borrowing scheme)
Alternative
funding arrangements(e.g. borrowing from governments
or financial markets)
Financing
Use of DGS funds
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Payout
DGS fundsshall be
primarily usedto reimburse
depositors after a bank failure
Resolution
DGS funds shall also be used
to finance the resolution of credit
institutions
Early intervention
DGS funds may be usedfor alternative
measures in order to prevent
a bank failure
+ +
Role of DGS in bank resolution
DGS shall contribute to the resolution of a failed bank as a preferred creditor:
the DGS intervention would only take place in the last instance, i.e. after bailing-in all unsecured creditors and using the financial means of the Resolution Funds
DGS's contribution would be limited:
up to the amount they would have contributed in insolvency
up to the amount equal to 50% of the DGS target funding level
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Bail-in: treatment of deposits/DGS
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DGS (covered deposits)
Households, micro, SMEs >€100,000
Subordinated debt
AT1 & T2
CET1
Senior debt & corporate deposits
>100,000
More bail-in or eventually alternative
financing sources (private,
public/ESM)
Resolution financing
arrangement 5% of liabilities
Internal absorbtion 8% of liabilities or 20%
of RWAs(in order of hierarchy)*
1. 8% internal loss absorbtion
8% of total liabilities or 20% of RWAs to be absorbed by shareholders and creditors before the use of the resolution financing arrangement
2. 5% Resolution financing arrangement
Resolution financing arrangement may provide loss absorption or capital injection of up to 5% of total liabilities
3. Alternative financing sources
Only after 5% of the financing arrangement's cap has been reached, and all unsecured and non-preferred liabilities other than eligible deposits have been bail-in
* Flexibility to depart from creditor hierarchy if not possible to bail-in the liability during the timeframe, would create contagion risks, lead to destruction in value, necessary to ensure continuity of critical functions.
Better information for depositors
While depositing money at a bank, depositors will have to countersign a standardised information sheet containing all relevant information about deposit protection by the DGS
The updated standardised information sheet will be sent by banks to their customers at least once a year
Banks will be obliged to inform their depositors about DGS protection of their deposits on the statements of account
Some restrictions on advertising on deposit products (only factual information, no referring to unlimited protection, etc)
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Next steps
General transposition deadline for Member States 3 July 2015
5 years after the entry into force, the Commission shallsubmit to the European Parliament and to the Council:
a report on the target funding level, the adequacy of the currentcoverage level, the impact of the early intervention measures ondeposit protection, etc.
a report (+ legislative proposal, if appropriate) setting out how DGSmay cooperate through a European Scheme to prevent risks arisingfrom cross-border activities and protect deposits from such risks
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