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BackProtection of deposits
A core element of the proposal on securing deposits is that in future bank deposits made by savers should be covered up to Euro 100,000 throughout Europe. According to the Commission, 95 % of all account holders in the EU will get all their savings back if their bank fails. What is also new is the fact that the Member States and their banks may no longer promise more than the maximum amount of Euro 100,000 as a safeguard. In doing so, the Commission wants to make a contribution to prevent the distortion of competition between the Member States as the height of the crisis has revealed that some Member States increased the deposit guarantee for their banks in an uncoordinated manner, thereby contributing to the outflow of savings from other countries.
Some banks in Germany and Austria, however, are not happy with the Commission proposal, for example the German savings banks and cooperative banking associations. Bank internal provisions (institution guarantee), which promise customers that their deposits are protected unlimited beyond the statutory deposit guarantee exist both in Germany (Deutsche Sparkassen- und Giroverband, Bundesverband der Deutschen Volksbanken und Raiffeisenbanken) and in Austria (Sparkassen-Haftungs AG, Schultze-Delitzsch Haftungsgenossenschaft, Österreichische Raiffeisen Einlagensicherung, Hypo-Haftungs-Ges.). Concerned banks naturally use this special form of the deposit guarantee as an advertising point. The new proposal of the Commission will prevent banks from promising in future that they would guarantee the deposits of their savers in excess of Euro 100,000. Critics of the “institution guarantee” expect that in a serious crisis the mutual promise of the banks to help each other in order to guarantee the saving deposits for their customers to an unlimited extend, would be worthless in any case as the institutions would not have sufficient funds to keep their promise. In the end, it would be up to the taxpayer to bail them out again.
In future, the deposit guarantee will also extend to small, medium and large companies as well as to all currencies. Deposits of financial institutions and public authorities, structured investment products as well as bonds, will remain excluded. It is also planned to make payments faster: account holders will get their deposits back within seven days. Apart from that, a new standard information sheet and statements will in future provide more information about coverage and functionality of the respective deposit guarantee scheme.
The scheme will be funded by the banks themselves in order not to burden the taxpayers again in case of a new crisis. The Commission is proposing the following four-step concept:
First, solid reserves will be built up by means of ex ante funds. If required, these reserves may be topped up by additional ex post contributions. If funding is still insufficient, banks may grant each other mutual loans. Other funding options will be considered as a last resort.According to the impact assessment of the Commission, the annual expenditure of the banks for the Deposit Guarantee Scheme will increase from Euro 1.8 billion to 2.6 billion; the operative results of the banks will subsequently be 4 % lower. This means for bank customers that they will receive 0.08 percent less interest for their investment in future or that they have to pay Euro 3.5 more in account charges.
Protection of investments
There are currently 39 different schemes in the EU to compensate investors if an investment firm is not able to repay the relevant assets. The objective is to use the proposed changes to extent the current 1997 Directive, which regulates the protection of investments. The intention is to increase among others the current minimum compensation amount from Euro 20,000 to 50,000 and that investors in case of an investment firm's insolvency will be compensated after nine months at the latest. To guarantee this, investment firms have to build up appropriate reserves in future. Furthermore, the Commission proposes to extend the protection of investors in the new Directive to holders of investment fund units, who suffer losses, if a depositary or a sub-depositary bank of the fund fails and to investment firms, which trust assets of their customers to a custodian who acts as a third party and who, if he becomes insolvent does not return these assets.
Better protection of insurance policy holders
In the insurance sector, currently only twelve Member States have one or more guarantee schemes in place, which strongly vary with regard to extent of cover, admissibility of claims, time of the intervention as well as the type of funding. By submitting the White Paper on “Insurance Guarantee Schemes”, the Commission now presents various options as to how fair and comprehensive consumer protection can be guaranteed within the EU so that in future taxpayers do not have to carry then can if an insurance company fails. In addition, the adoption of a Directive will be proposed, which should guarantee that all Member States have a guarantee scheme for insurance policies with certain minimum requirements. Statements and proposals may be submitted until 30th November 2010.
Further information:
Press release of the European Commission