18 December 2013

ECON Committee: EP and Council negotiators break depositor-taxpayer link

This agreement, three years in the making, will govern deposit guarantee schemes to be set up in each Member State. Each fund must reach an amount equal to 0.8 per cent of the covered deposits within 10 years, and depositors will be sure to get their money back within seven working days.

"This is a good day for the taxpayer and for depositors. We have severed the link between taxpayers and banks, and depositors will be able to receive their money faster", said the MEP leading the negotiations for Parliament, Peter Simon (S&D, DE).

Deposit guarantee funds

The funds available for reimbursing depositors in times of difficulty must reach 0.8 per cent of covered deposits within 10 years of the system’s entry into force. With the approval of the European Commission, the 0.8 per cent target could be reduced to 0.5 per cent in the case of “concentrated banking sectors”, i.e. where banking assets are concentrated in the hands of a few banks. If a scheme is obliged to make a large reimbursement during the build-up phase, it will be granted a further four years to reach the stipulated target fund level.

Banks will contribute to the funds according to their risk profiles, with those exercising riskier activities contributing more.

Finally, 70 per cent of payments into funds will need to be made in real cash and paid up on time. Banks will be able to defer only up to 30 per cent of the money they owe their fund from one year to another. The Council originally sought to offer banks far more leeway.

Rapid reimbursements

MEPs considerably reduced the time depositors will have to wait before getting their money back. For a long time the Council refused to reduce the current time limit of 20 days. In the end, the deal stipulates a reimbursement deadline of seven working days for the entirety of a deposit and five working days for a sum allowing the depositor to cover the cost of living in that country. Member States will be allowed to deviate from the seven-day limit but only until 2024.

To apply within a year

MEPs also ensured that Member States will have to transpose the Directive into their national laws within 12 months of its entry into force.

Press release

See also: Memo on the State of Play of the Banking Union, 17.12.13

In a statement, Commissioner Barnier said: I welcome the political agreement reached today between the European Parliament and EU Member States on the new rules on Deposit Guarantee Schemes (DGS). Just a few days after the agreement on bank recovery and resolution (BRRD), we are taking another important step towards completing the single rulebook on crisis management for credit institutions in the EU.

These new rules will benefit all EU citizens: not only will their savings be better protected, but they will also have the choice of the best savings products available in any EU country without worrying about differences in the level of protection. The new Directive will require better information to be provided to depositors to ensure that they are aware of how their deposits are protected by the guarantee schemes.

The Directive will strengthen the existing system of national DGS to respond to the weaknesses that the financial crisis revealed. Depositors will continue to benefit from a guaranteed coverage of €100,000 in case of bankruptcy, but access to the guaranteed amount will be easier and faster. Repayment deadlines will be gradually reduced from the current 20 working days to seven working days in 2024.

For the first time since the introduction of DGS in 1994, there are financing requirements for DGS in the Directive. In principle, the target level for ex ante funds of DGS is 0.8 per cent of covered deposits to be collected from banks over a 10-year period.

I look forward to the European Parliament and Council confirming this political agreement in the forthcoming weeks.

Full statement

“Deposit Guarantee Schemes is for strengthening the protection of depositors. In case of bank insolvency or resolution it is very important that people would get their money as soon as possible. This political agreement also brings us nearer to the Banking Union. This fact gives additional motivation before ECOFIN Council meeting where we will strive for agreement on Single Resolution Mechanism", said Lithuanian Finance Minister Rimantas Šadžius, Chair of the ECOFIN Council.

Lithuanian Presidency reaches political agreement on Deposit Guarantee Schemes

Elisa Ferreira, the MEP in charge of steering the regulation through the Parliament, said a European deposit guarantee system would be needed as the last necessary step towards a Banking Union. "I hope the momentum is not lost and we don't end up with just national guarantee schemes", Ms Ferreira said.

Press release

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