02 December 2019

European Commission: Options and national discretions under the DGS Directive and their treatment in the context of EDIS

The purpose of this study is to assess the respective national implementations of the national options and discretions (NODs), including their practical impact on depositor protection, and to propose policy recommendations regarding their possible treatment under the European Deposit Insurance Scheme, under the assumption that the latter would take the form of a full insurance scheme.

There are many differences between Member States in terms of the transposition of the NODs into national law and their use in practice. The mapping of the current use of NODs in the Member States, set out in the study, contributes to the discussion regarding the treatment of NODs under European Deposit Insurance Scheme (EDIS)  because it helps to identify the degree of current fragmentation and the possible scope for further convergence.

Several NODs are highly important for the protection of deposits in the Member States and would continue to be relevant in the context of EDIS as well.

For example, the coverage of temporary high balances (NOD 4) is currently largely divergent across Member States and has a clear potential to increase financial exposure to EDIS. However, there is a public interest in protecting the deposits linked to specific, often one-time, life events although such amounts exceed the regular coverage level. Moreover, the study shows that the calculation of the contributions differ somewhat across the EU (NOD 4, 17 and 19) or that depositors of third-country branches may be subject to a different treatment in some countries (NOD 20). Therefore, further harmonisation would help improve the level playing field and ensure the same level of protection for the depositors, while addressing their treatment under EDIS.

By way of another example, DGSs can currently have different objectives across the EU: protection of covered deposits only (‘pay box’ function), or also preventive measures (NOD 13) or alternative measures (NOD 14). These differences could make the build-up of EDIS to take the form of a full insurance scheme more complicated.

In many Member States, NODs have been transposed in law but not (yet) used in practice. Only about 20 % of the NODs transposed have so far been used in practice. In some cases (mostly regarding the NODs 1 to 10 related to the coverage level and pay-out procedure), this may be explained by the lack of pay-out events. In other cases, the study shows that some of the NODs are not easy to use in practice (NOD 11, 12 or 16) or the national DGS has chosen not to use the NOD.

The lack of practical use of some NODs calls into question whether they should continue to be part of the framework. Indeed, NOD 16 on lower contributions for low-risk sectors is not used in practice because the definition of a low-risk sector is considered too complex. NOD 12 dealing with contributions into existing mandatory schemes is only specific to one Member State and would not be relevant any longer. The relevance of transitional NODs (NODs 21 and 22) is naturally diminishing, as they are designed to expire at some point in time.

A small number of NODs address national specificities and circumstances. For example, the exclusion of deposits to pay off a loan on private immovable property (NOD 3) and deposits fulfilling a social purpose (NOD 8) address each circumstance specific to one Member State. They could be retained under EDIS, as they are neither increasing the risk for EDIS nor for the depositors.

With few exceptions, the relevance of NODs in terms of impact on covered deposits in a Member State is generally low.

The study shows that the majority of NODs, including that for temporary high balances, would only have a low impact of up to 10 % on the covered deposits in a Member State and thus form a limited risk to the DGS. There are several exceptions. Among NODs addressing special national circumstances that relate to substantial amounts of deposits, NODs 3 and 8 would have no impact for the risk profile of the DGS. By contrast, old-age provision products and pensions (NOD 5) could increase the risk profile of the DGS, though this could be mitigated with risk-based contributions in the context of EDIS. In addition, there are other NODs regarding risk adjustments in the calculation of contributions (e.g. NOD 18 involving 80 % of deposits covered by the national DGSs).

Full study on European Commission

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