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The Fund is being built up over eight years, from 2016 to 2023, and the target must, by law, reach at least 1% of the amount of covered deposits of credit institutions in the Banking Union.
The SRB has just adopted its decision[1] on the calculation of the 2022 contributions, known as ex-ante contributions. For the current year, the total amount of ex-ante contributions to be transferred to the SRF is €13.7 billion[2].This will bring the SRF to €66 billion, with a projected size of around €80 billion at the end of the transitional period in 2023. 2022 and 2023 will be the last years in which the fund is still being built up, after which contributions should level off.
How do we work out what each bank must pay in? The way we calculate the contributions is set out clearly in the legal framework[3]. The individual amount each bank owes is calculated pro-rata, taking the amount of its liabilities (excluding own funds and covered deposits), in the context of the aggregate liabilities (excluding own funds and covered deposits) of all the credit institutions in the Banking Union. This is then risk-weighted using a complex methodology, which takes into account several risk indicators[4].
Rising target level
The SRB sets a target level each year, in line with our legal obligation to reach the final target level by 31 December 2023. We consider several criteria – the evolution of covered deposits, the phase of the business cycle, the possible impact on the financial position of institutions and the obligation to spread the contributions evenly throughout the build-up period. In 2022, through a consultation, the SRB gave banking institutions the opportunity to comment on the main elements of the ex-ante calculation decision and received valuable feedback on several aspects, including on the annual target level.
When compared to 2021, annual ex-ante contributions have increased sizeably and it is worth analysing the drivers for this in more detail. The main factor driving the increase in the annual target level is clearly the growth in covered deposits. After having shown early signs of acceleration in 2018, which were confirmed in, covered deposits have continued to display high levels of growth in 2020 and in 2021, as a result of changes in savings and consumption behaviour related to the Covid-19 crisis. In particular, according to the data set provided by the Deposit Guarantee Schemes (DGSs), in 2021 the average amount of covered deposits, calculated quarterly, of all credit institutions in participating Member States amounted to €7126 billion, representing a growth of 6.5%, compared to the average amount of covered deposits reported in 2020. In light of the above, a strong deceleration of covered deposits growth rates in the remaining two years of the transitional period seems unlikely. We don’t see any indicators that would support an annual growth of covered deposits in 2022 and 2023 of less than 5%.
To be clear, the increase in amount of ex-ante contributions does not reflect in any way an increase in the perceived riskiness of institutions under the SRF remit, but rather reflects the significant growth in covered deposits by the end of the transitional period (which makes it impossible to spread out the increase over a larger time-horizon).
What’s next
Thanks to the build-up of the SRF and once the Common Backstop (which provides additional funding, mirroring the size of the SRF) is finally in place, the Banking Union will increase its firepower to manage bank failures, bringing further confidence to the system and helping the SRB to promote financial stability and protect the taxpayer.
In 2024, the SRF will be fully mutualised and stand at around €80 billion (1% of covered deposits), and the national DGSs should also have reached their targets of 0.8% of covered deposits. This means that the funds available to the Banking Union will be comparable to those in the US[5] (2% of covered deposits). However, while the US has a single, central fund, the Banking Union funds for management of bank failure are pooled separately by both Member State and purpose.
We hope to see political agreement on the path to a European Deposit Insurance Scheme in the coming weeks, which would make the Banking Union financial safety net truly European. Thought could be given to how SRF funds might be used to help start the European Deposit Insurance Fund, to further strengthen the resilience of the Banking Union financial safety net and reduce financial fragmentation.