EC Consultation Document Review of Directive 94/19/EC on Deposit-Guarantee Schemes (DGS)

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3 EC-consultation-review of Directive(2) (3)ENG.docx version 24/07/2009 EC Consultation Document Review of Directive 94/19/EC on Deposit-Guarantee Schemes (DGS) BHB 3 Executive summary In this preliminary comment, Febelfin wants to stress the following aspects : 1. The Belgian Financial Sector Federation considers a far-reaching harmonization at the European level of the modalities for the coverage provided by the DGS as a priority. The big differences which currently exist in this field, may cause too much confusion among the savers as well as an unlevel playing field for banks. 2. Information about the DGS should be based on clear agreements which are the result of consultation between the sector, the supervisors and the competent authorities. This is the best way to take into account the national and local habits, customs and practices. It also seems recommendable to leave room for sector self-regulation based on consultation with the authorities. 3. In case of an accident, one should first and foremost make sure that the rights of the parties concerned, more particularly the depositors, are secured and that there is certainty about the depositors being paid. As for the terms of repayment, it would be wise not to create any expectations which, from an operational point of view among other things, cannot be met. 4. Febelfin strongly insists on keeping the debt securities issued by the credit institutions (and which are also included as assets into the balance sheet) within the scope of the coverage. In Belgium, the bons de caisse/kasbons are a savings instrument meant for regular savers and in fact, this instruments is the same as a deposit. The question whether such an instrument is being kept in custody by the issuing bank or elsewhere must not make a difference as for the guarantee provided by the DGS. 5. Furthermore, Febelfin also pleads for the continued application of the DGS cover on the deposits of the self-employed, the liberal professions and SMEs. Belgische Federatie van de financiële sector Aarlenstraat 82 B-1040 Brussel T F

4 2 Question 1: Do you agree in general that the current framework of DGS in the EU needs to be revised? Are the areas identified for review the right ones, or are there other priorities? During these last few months of financial crisis, the deposit-guarantee scheme has become a hot topic. Both at the national and European level, measures have been taken in order to strengthen the deposit-guarantee systems with the purpose of safeguarding the savers confidence in the banking system. As for the recent modification of EU Directive 94/19/EC (as a result of Directive 2009/19/EC of March 11, 2009), it is important to make sure that the necessary action will be undertaken to ensure the timely, correct and unambiguous application of the provisions that have been changed. The conclusions in the report to be presented by the European Commission (EC) to the European Parliament and the Council by the end of 2009, will be very important up to the point of being determining for a possible review of the European regulation in the future. In general, Febelfin is in favour of a far-reaching harmonisation of the coverage aspects of the DGS at EU-level in the first place. Obviously, one should refer to the principles and the practical application of better regulation within the EU. Febelfin also asks that, within a larger context, sufficient attention will be paid to the public awareness and to the knowledge of risks, in relation to the profitability of saving and investment products among other things. The following options could be considered: (a) Revert to a coverage of 50,000 Appropriateness of the coverage levels (b) Coverage of 100,000 (current approach from end 2010 onwards) (c) Coverage of a higher amount (d) Coverage depending on the actual size of deposits or economic indicators such as the Gross Domestic Product per capita (hence different in each Member State) (e) Unlimited coverage Question 2: Which of the above options would you prefer? Would you prefer another option? Please explain your choice.

5 3 The harmonisation one is aiming at, of course should pertain to one of the key elements, such as the amount to be guaranteed. A standard amount per depositor which is the same for all Member States, would be the ideal solution in terms of a level playing field and would ensure transparency for the savers. This harmonisation takes priority over the level of the amount. Apparently, additional research has to be done as for the guarantee level one wants to offer. It goes without saying that one should take into account the fact that due to the crisis of these last few months, several Member States have decided to raise the guarantee level (in Belgium, 100,000 EUR). This had to be done in order to maintain and safeguard confidence. This research should make it clear whether it is recommendable and feasible, after the crisis, to return to a lower level of guarantee amount. One aspect to be taken into account within this context, is the fact that some kinds of deposit are characterized by longer terms to maturity. Options (d) and (e) seem to be hard to defend as well as inappropriate. As for option (d), the situation would become complex and hardly transparent for the savers. Option (e) raises the acute question of moral hazard, whereas the major aim of a deposit-guarantee scheme is to protect the common and especially the small saver. See also Question 3 on differences in coverage level and Question 30(e) on a possible de-minimis rule (i.e. deposits below a certain size, e.g. 10 would not have to be paid out). Question 3: Should the coverage level you prefer (Question 2) be a minimum or a fixed level? Or do you think a different solution would be more suitable, e.g. a range with a minimum and maximum level? If so, please describe. Please give reasons for your choice. For the sake of simplicity and clarity for the depositors, one favours a system with a standard fixed amount for all Member States. This also would allow to avoid the risk of competition distortion and the risk of regulation being used only for commercial purposes (regulatory arbitrage). Question 4: Do you have background information or evidence whether depositors have split up their deposits when the financial crisis aggravated in autumn 2008? Should depositors be actively encouraged to split up their deposits between different banks or is this inappropriate? Please give reasons.

6 4 In the wake of the difficulties the Belgian financial sector has been facing, a number of rather limited shifts indeed have happened as for depositing and deposit keeping. However, the splittingup of deposits became less of a problem once the guarantee amount had been raised to 100,000 EUR per depositor. The public authorities also made a number of statements aimed at restoring confidence. Any approach which explicitly encourages a splitting-up of deposits, would undermine confidence and create disturbance and this would run counter to the purpose of ensuring confidence and stability. Lending may also be affected indirectly as a consequence of the disturbance of normal bank funding. It is important to provide the depositors with access to adequate information about the mission and functioning of the DGS. In this way, the saver himself can take this information as a basis for his savings and investment decisions. Furthermore, customers are free to develop relations with several banks and to use the services aimed at making switching easier. Within this context, Febelfin would like to point out that the recent measure which has been taken at the Belgian level (applicable as of November 1, 2009), goes further than what has been provided at the European level within the framework of selfregulation within EBIC. Question 5: Do you think this problem could be solved with a mere information obligation towards depositors (see Questions 22-25)? Or do you think banks should have the option to ask for coverage per brand name to avoid aggregation of accounts in case of failure? If so, and how, should this be taken into account when the contributions of such banks to DGS are calculated? What is most important, is to provide adequate information which offers a maximum of clarity to the depositors. Customers should use this information as a basis for assessing their position towards the deposit-guarantee system, thereby taking into account the brands that are being used, if any. However, it may be recommendable to look further into this matter. In Belgium, the use of different brand names within the range of a single credit institution is not very common. Additional research should pertain to the possible consequences, as for competition and commercial practices, of a change in the application of the guarantee offered by the DGS as compared to the current system

7 5 (based on the legal entity). Attention also could be paid to the risk of abuse (maximizing the coverage by a multiplication of brands, which would entail a heavy cost burden for the DGS). Question 6: If the coverage level is fixed, should there be exemptions that allow a higher coverage of certain products for social considerations? If so, for which products should there be exemptions and up to which amount? Should this be harmonised or should Member States have the discretion to decide on this? In the latter case, which elements should be within the discretion of Member States (e.g. amount and duration of coverage)? Exceptions of this kind, which provide a higher or broader coverage, currently do not exist in Belgium. One of the problems is the fact that it is hard to put exceptions of this kind into an objective framework. There may be differences at the national level, for example as for the social concerns. Consequently, a harmonisation which goes beyond the level of the individual Member States (something which is essential for Febelfin) is far from being obvious. So, apparently there is a need for additional research, more particularly in order to find out how much room there is to move without jeopardising the basic principles. If the final conclusion is that there is a need for some exceptions to the uniform standard guarantee, then these exceptions must be laid down and applied in a standard way within the EU as a whole. Neither at this level should there be any differentiation which may distort the competition between banks of the Member States and which may be confusing for the savers. Question 7: Should temporary high account balances be covered? If so, up to which amount and for how much time? In which situations should these balances be covered? Should this be harmonised or should Member States have the discretion to decide on this? In the latter case, which elements should be within the discretion of Member States (e.g. situation, amount and duration of coverage). Should, in order to facilitate payout, such balances be transferred to special accounts that are tagged? Do you see other solutions to protect temporary high balances? See the answer to question 6. Question 8: Should mutual guarantee schemes and voluntary schemes be integrated into the Directive so that the same rules would apply for them as for 'classical' DGS? If

8 6 so, how? Should there be restrictions on advertising for these schemes? Please provide reasons. The existence of such mutual guarantee schemes and voluntary schemes is hardly compatible with the principles governing the existence of a level playing field and transparency. Anyhow, one should make sure that the participants of schemes such as these will not be exempt from the obligation to take part also in the regular DGS (the functioning of which is in accordance with the EU Directive). Scope of deposits covered by DGS The scope of eligible deposits could be in the discretion of Member States or harmonised. If it is harmonised, it could be considered to fully cover certain deposits, to cover them only up to a certain percentage of the normal coverage level, or not to cover them at all. A. Structured deposits: Question 9: Which solution(s) would you prefer as regards structured deposits? Please provide reasons. Would you prefer another option? Please describe. First, one should point out which kind of instruments exactly belong to this category and what is the basis (or which are the criteria) currently used for deciding whether or not they fall under the definition of the deposits (in accordance with article 1 of Directive 94/19/EC). A (secondary) aspect for possible analysis, along with the principle of coverage, could be the valuation of such a deposit. In the Belgian guarantee system (and of course, within the limits of the definition mentioned in the EU Directive and taking into account the authorised exceptions that are applied), the whole of customer deposits which is part of the liabilities on the bank s balance sheet, in fact fall within the scope of the coverage. Other investment instruments which are no part of the actual resources of the bank, lie outside this scope. This way of working may provide a link as for the treatment of structured deposits. B. Debt certificates issued by a credit institution: Question 10: Which solution(s) would you prefer as regards debt certificates? Please provide reasons. Would you prefer another option? Please describe.

9 7 The Belgian guarantee system covers debts in the form of debt securities. This seems to be logical, since these debt securities issued by the credit institutions directly fall under the definition of a deposit, as stated in article 1 of the EU Directive. It goes without saying that these debt securities cannot be taken into account for coverage if they fall under the definition of own capital (cf. article 2 of the Directive) and that they must be nominative, be held in custody or be put on a securities account (with reference to potential exception 10, as mentioned in annex I of the Directive). In Belgium, one has opted for a strict interpretation of potential exception 12 as mentioned in annex I of the Directive ( Debt securities issued by the same institution and liabilities arising out of own acceptances and promissory notes ). It seems rather illogical first to include these debt securities into the standard definition of a deposit and then to provide the possibility of completely excluding them. Neither is this way of working very helpful in enhancing transparency for depositors (putting forward the principle on the one hand and making it possible, on the other hand, to completely eliminate or negate this principle). In Belgium, a large number of banks continuously issue bons de caisse/kasbons, i.e. debt securities with an average maturity of 1 year or more. The current amount outstanding of these bons de caisse/kasbons is about 35 billion EUR. Since this is a savings instrument which traditionally is meant for common savers, which is easily accessible and in fact can be compared with a term deposit, there is little reason for keeping it outside the scope of the guarantee. This would be as illogical as excluding any other category of ordinary deposits. On behalf of its members, Febelfin in this matter pleads for harmonisation by including these instruments into the scope of the guarantee on the basis of the current standard definition of a deposit as mentioned in the EU Directive. This broadness of scope should allow to protect a (popular) instrument such as the Belgian bons de caisse/kasbons, regardless of the question whether they are being held in custody at the issuing bank or at an other institution. C. Accounts in non-eu currencies: Question 11: Which solution would you prefer as regards accounts in non-eu currencies? Please provide reasons. Would you prefer another option? Please describe. The deposit-guarantee scheme aims at protecting common depositors. Consequently, in Belgium one has opted not to provide coverage for deposits labelled in currencies other than the euro or the currencies of EEA Member States. This kind of investments indeed automatically imply an exchange

10 8 rate risk the investor has to take into account. Anyone who thinks he is capable of assessing this risk, must be classified as an uncommon investor taking an interest in advanced level investments. Hence Febelfin s plea for harmonisation in this field through a general exclusion from the scope of the guarantee. Given the fact that the Belgian system is an ex ante financed Protection Fund, including this category of deposits would have significant consequences as for the banks funding costs. The inequality due to the difference among the systems of financing ( ex ante versus ex post ) would even increase. Furthermore, one can easily explain the exclusion of deposits labelled in non-eea currencies to the depositors and there is no danger of a delay in the pay out in case of an accident. Febelfin at least asks additional and extensive research on this topic, before any decision will be taken. One of the aspects to be examined are the financial consequences. Question 12: Should the eligibility criteria as regards depositors (provided for in Annex 1 no of the Directive) be fully harmonised or should Member States retain some discretion to decide about eligibility of depositors? (If you prefer that Member States retain discretion, please skip questions 13-16) As a matter of principle, Febelfin is in favour of a full harmonisation of the criteria for eligibility (more particularly, the exceptions mentioned under 1 up to 11 in Annex I of the EU Directive). This allows for a minimum of potential distortions. This also has a beneficial effect on simplicity and transparency, and in its turn, this makes it easier to ensure a smooth pay out in case of an accident. Eligibility of depositors If the eligibility criteria in Annex 1 no are harmonised, it could be considered to fully cover all depositors, to cover them only up to a certain percentage of the normal coverage level, or not to cover them at all. A. Enterprises in the financial sector (Annex 1 no. 1, 2, 5, 6): Question 13: Do you have background information or evidence whether a covered amount of is relevant for these enterprises? Which solution would you prefer? Please provide reasons. Would you prefer another option? Please describe.

11 9 General exclusion is justified, because one is dealing with professional market players who lie outside the normal scope of the deposit-guarantee scheme. B. Authorities on central and local level (Annex 1 no. 3, 4) Question 14: Do you have background information or evidence whether a covered amount of is relevant for authorities? Which solution would you prefer? Please provide reasons. Would you prefer another option? Please describe. General exclusion is justified, because those parties do not belong to the category of common and small investors. C. Depositors having a relationship with the failed bank (Annex 1 no. 7, 8, 9, 11) Do you have background information or evidence on how many depositors are actually concerned by this? Question 15: Which solution would you prefer? Please provide reasons. Would you prefer another option? Please describe. Exceptions 7 and 8 mentioned in Annex I indeed have a rather symbolic significance and may cause some problems as for their application in practice. This certainly goes for exception 8, which may also raise deontological questions. The delimitation of the target group is vague and liable for interpretation and moreover, the involvement of these persons in case of the bank s default is not always obvious. D. Depositors who opened their account anonymously (Annex 1 no. 10) Do you have background information or evidence on how many depositors are actually concerned by this? Question 16: Which solution would you prefer? Please provide reasons. Would you prefer another option? Please describe Deposits which are anonymous, are best left out as part of a general exclusion. Practices such as these are uncommon in the category of common savers and investors. Coverage of companies/enterprises The following categories could be used: Companies that cannot draw up abridged balance sheets; micro-, small, medium-sized enterprises or all enterprises) The following options could be considered:

12 10 (a) No coverage for any company or enterprise (i.e. no coverage of accounts used for professional purposes) (b) Include certain categories of companies or enterprises but exclude others in a harmonised way (c) Include certain categories and leave exclusion of other categories to the discretion of Member States (similar to current approach) (d) Coverage for all enterprises and companies regardless of their size (e) Limited coverage according to the category Question 17: Do you have background information or evidence whether a covered amount of is relevant for companies or enterprises above a certain size? Would you prefer to keep the current approach (companies that cannot draw up abridged balance sheets may be excluded by Member States)? If not, which solution would you prefer? Please specify, which category/-ies should be used to distinguish and if so, to which amount you would limit the coverage. Please provide reasons. Would you prefer another option? Please describe. Coverage for SMEs should be maintained. The transparency towards customers of course is utterly important : a definite criterion is absolutely necessary, regardless of the EU Directive that is used as a reference. Under the DGS, at least small non-financial companies have been included into the coverage for years and this makes it difficult to withdraw this guarantee. Moreover, the presence of numerous SMEs is typical for the corporate structure in many EU Member States (especially in Belgium). Hence the importance of the confidence of those companies in the banking system. Febelfin pleads for a harmonised approach in which SMEs continue to benefit from coverage, whereas big companies are left out. This ties in with approach (b) mentioned above. The current selection procedure based on the regulation stipulated under 14 of Annex I of the EU Directive has proved to be workable. This procedure can be maintained. Should there be another procedure offering comparable results, its feasibility first should be analysed in detail. What is most important, is that the situation is clear and transparent to the corporate customers concerned (they must be able to make a sufficient assessment of their position as for the DGS).

13 11 A possible solution would be the establishment of a pan-european DGS. Question 18: Would you be generally in favour of a pan-eu DGS? (If you disagree, please skip questions ) If so, should there be a transition period until a pan-eu DGS should be operational? If so, how long? Please provide reasons. The general position of Febelfin is that there is a need for a full harmonisation of the concrete rules for offering a coverage under the guarantee systems. When this goal which is a real priority will have been reached, it could be the starting point for further analysis of the need for and the feasibility of future measures, including the need for and the feasibility of a pan-european protection system. In the analysis of a possible evolution such as this (towards a pan-european DGS), one of the aspects to be taken into account is the link between the guarantee system and the other elements of the security framework (prior to the DGS) as for the sector (including micro- and macroprudential supervision, crisis management, early intervention mechanisms, etc.). The analysis would also pertain to the link with burden sharing. The aims and consequences of a pan-european DGS also should be the object of analysis. Structure of a potential pan-eu DGS There seem to be at least the following options concerning the possible structure of a potential pan-eu DGS: (a) Single entity replacing the existing DGS (b) A DGS that is complementary to existing DGS that would support the existing DGS if needed ("28th regime") (c) "European system of DGS" (i.e. a network of schemes in the Member States that provide each other mutual assistance if needed, e.g. by borrowing from each other) Question 19: Which solution would you prefer? Please provide reasons. Would you prefer another option? Please describe. If you support option (c), please indicate how in your view, such mutual assistance should be provided. Should mutual guarantee schemes and voluntary schemes (see question 8) be integrated into a pan-eu DGS? If so, how? See the answer to question 18. Scope of a potential pan-eu DGS With regard to the scope of a potential pan-eu DGS, there are at least the following options: (a) All banks should contribute to a potential pan-eu DGS

14 12 (b) Only large cross-border banking groups (i.e. banks with a certain systemic relevance that have subsidiaries in other Member States) (c) All cross-border banks (i.e. those who operate directly or by means of branches in other Member States than in the one where they are licensed) Question 20: Which solution would you prefer? Please provide reasons. Would you prefer another option? Please describe. See the answer to question 18. The following options could be considered: Mandate of DGS (a) Retain current approach (other DGS functions than paying out depositors within discretion of Member States) (b) DGS provide liquidity assistance to banks in need (c) DGS participate in the reorganisation of banks (d) DGS play an active role in the winding up of banks Question 21: Which solution would you prefer? Should this solution be recommended or mandatory? Please provide reasons. Would you prefer another option? Please describe. Would a broader mandate fro DGS require a different funding mechanism or a higher level of funding? If you prefer a pan-eu DGS (Question 18), please precise which options you would prefer in that case. The major aim of the deposit protection system is to contribute to the confidence in the sector by means of guaranteed repayment in case of bank default. This role must be put into perspective together with the responsibility and competence of the other competent authorities that are part of the security framework (i.e. the supervisors, the central banks, etc.). The financial resources of a protection system are limited and should be used for reaching its basic purpose in the first place. Within this context, one may also point out that, as a rule, the premises of EU deposit-guarantee systems are fundamentally different from those of the American FDIC, which for instance has a number of supervisory powers. At present, the Belgian protection system can play a preventive role within strict limits and restrictions in order to avoid a case of bankruptcy and the ensuing repayment to depositors by the DGS. There may be significant differences from one Member State to an other, due, among other things, to legal differences as for the competence of several bodies.

15 13 This dimension should be included into the additional research mentioned in the answer to question 18 as far as the idea of a possible pan-european DGS is concerned. Harmonisation of the information for depositors In order to ensure that all depositors throughout the EU get the same information, it could be considered to recommend or prescribe a template for standardised information. This template could be annexed to the Directive or be developed by stakeholders. Question 22: Which solution would you prefer? Please provide reasons. Would you prefer another option? Please describe. If a full harmonisation can be achieved as for the conditions for providing a coverage under the guarantee schemes, it would be easier for depositors to assess their situation with respect to the deposit-guarantee schemes (e.g. also when they have deposits at branches of banks from other EU Member States or when they make cross-border deposit investments). As for information providing, the amendment of the EU Directive earlier this year already resulted in a number of more stringent provisions. The most important thing in this respect, is to ensure adequate application of those provisions. Information providing is an aspect of the direct relationship between banks and their customers. So, there should be enough room for a flexible application of the general (legal or other) rules for the purpose of taking into account the specific features of this kind of customer relationship. Administrative formalities (e.g. a template for standardized information) which are very rigid and which are the result of (European) regulation, probably will not lead to the best and most user-friendly approach. There must also be room for adapting to changing circumstances. In this respect, it also would be recommendable to make room for self-regulation at sector level, especially at the level of the Member States. This would make it possible to pay attention to the local situation (e.g. as for the information channels that appeal most to the public at large) and the local customs, as well as to the language differences. Of course, national agreements about adequate information must be based on consultation between the sector, the supervisors and the public authorities. In this way, maximum attention can be paid to the security framework and to the public interest. Advice to split up deposits between banks (See also Question 4) Currently, depositors do not have to be informed that it is safer to split up deposits if the coverage limit is exceeded.

16 14 Question 23: Should such information be required or recommended? Please provide reasons. Would you prefer another option? Please describe One may refer to the answer to question 4 and point out again that it would be unwise to adopt an approach which systematically encourages a splitting-up of deposits, since one element or another may run counter to the ultimate aim of the deposit-guarantee scheme (i.e. contribute to install confidence). The following options could be considered: When and how should depositors be informed? (a) Retain current approach (details left to the discretion of Member States) (b) Mandatory reference to information on DGS in advertisements (c) Mandatory reference to information on DGS on account statements (d) Require depositors to countersign information on DGS before entering into a contractual relationship and to receive a copy. Question 24: Which solution(s) would you prefer? Please provide reasons. Would you prefer another option? Please describe. We refer to the answer to question 22 and prefer option (a) on the basis of the general guidelines laid down at the European level (in the Directive). At present, the question is how to update the system of information providing in the light of the amended provision in the Directive (modified wording of article 9). It also would be recommendable to make room for sector self-regulation. As has been explained, the information system one opts for, must be the result of consultation between the sector, the supervisors and the public authorities, if one wants to meet the need for information in the best possible way. Information in case of a bank failure With regard to the question, from which DGS depositors should receive information when their bank fails, the following options could be considered: (a) Retain current approach (Home country scheme must inform) (b) Host country DGS must inform depositors at branches in another Member State (c) Individual agreement between DGS about who informs depositors

17 15 Question 25: Which solution would you prefer? Please provide reasons. Would you prefer another option? Please describe. Which approach would you prefer in case of a pan-eu scheme not being a single entity (see question 19)? Please explain. As a matter of principle, the way of working in this respect should tie in with the way in which the responsibility has been laid down : deposit protection for branches in other Member States depends on the scheme governing the parent bank. This means that the home country principle must prevail. From a practical point of view, there is some sense in letting the host country scheme play a role as a contact for the local depositors at the branch. This calls for sound agreements and cooperation between the home system, which bears the responsibility, and the host system, which provides the information. However, the depositors clearly must understand that the latter system does not bear the ultimate (financial) responsibility. Set-off arrangements The following options could be considered (please note that the options below are not mutually exclusive): (a) Retain current approach (unlimited set-off; within discretion of Member States) (b) Discontinue or limit set-off for the payout of depositors (c) Discontinue or limit set-off in the insolvency procedure (when the DGS has subrogated into the depositors' claims against the bank) (d) Limit set-off to claims that have fallen due or are delinquent (e) Limit set-off to a certain amount or percentage of covered deposits but leave it optional (f) Encourage depositors to split deposits and liabilities between different banks (rendering set-off obsolete if this encouragement is effective) Question 26: Which solution would you prefer? Please provide reasons. Would you prefer another option? Please describe Deposit and debt compensation is a complex matter in which other regulations (such as the laws on bankruptcy among other things) also play an important role. These regulations often have a strong national character. As a matter of principle, compensation applies and in some cases, it can be to the advantage of the customer. However, further analysis, also (and especially) at the national level, of this aspect seems recommendable. Payout delays

18 16 In order to reduce payout delays as such, the following options could be considered (Please note that the options below are not mutually exclusive): (a) Retain current approach (4-6 weeks from end 2010 onwards) (b) Reduce payout delay to one week after a certain transition period (c) Differentiate payout delay, i.e. a longer payout delay only for depositors where set-off has to be calculated or whose eligibility has to be thoroughly examined Question 27: Which solution would you prefer? Please provide reasons. Would you prefer another option? Please describe. The credibility of the guarantee system as for the coverage offered to the savers is even more important than a repayment of deposits within a very short time. Certainty about the repayment is fundamentally important. In this respect, additional measures have been taken as for the Belgian protection scheme over these last few months. In case of an accident, it is essential that the rights of the parties concerned (and those of the depositors in particular) are laid down and endorsed. The term of repayment has been shortened considerably (20 working days as of the end of 2010) as a result of the amendment which has been made to the Directive. Before considering a further reduction of this term, one first should make an assessment of this new element and of the way in which it is applied. When it comes to decide about a term reduction, one always has to strike a balance between the inevitable cost of implementation (which may be considerable) and the actual added value (in terms of a real gain of confidence). It is also necessary to check if such a reduction actually can work in practice. Very short terms may raise doubt (justified or not) about the possibility of fulfilling the obligations and this may jeopardise the credibility of the system as a whole. Any decision in this field must be taken on the basis of realism and rationality. There is little sense in creating expectations which are impossible to meet from a realistic and operational point of view. Alternative solutions As an alternative (or supplementary) to a mere reduction of the payout delay, it could be considered to transfer deposits to another bank or to have an emergency payout procedure in place (e.g within 3 days). Question 28: Would you prefer such solutions? If so, on a voluntary or mandatory basis? Please provide reasons. Would you prefer any other option? Please describe. Also in this respect, it seems wise to wait for an assessment of the recent decision to reduce the term of repayment to 20 working days. Full repayment in one single transaction is the option one should prefer, because provisional and partial repayments are difficult from an administrative point of view, because they may involve rectification ex post, etc. This may affect transparency as well

19 17 as the smooth and timely execution of the repayments. Attention also must be paid to some aspects of the national regulations (e.g. the idea of partial availability or transfer of deposits). Payout modalities In order to achieve clear and fair payout modalities, the following options could be considered (please note that the options below are not mutually exclusive): (a) As regards the calculation of payout delay, it could be considered to calculate the payout delay and the delay to determine a payout situation in calendar days (b) As regards the currency of payment, it could be considered to leave this within discretion of Member States (current approach) or in the same currency as the deposits were paid in. (c) As regards interest payment, it could be considered to leave this within the discretion of Member States (current regime) or to pay interest that has not been credited at the time of failure. Question 29: Which solution(s) would you prefer? Please provide reasons. Would you prefer any other option? Please describe. A term of repayment labelled in calendar days indeed may be clearer for all of the parties concerned. The possibility of such a change however must not be taken as an incentive for a further reduction of the term, if there is no study that may serve as a justification as for the need, the added value and the feasibility from an operational and financial point of view. As for the repayment currency, there is a possible argument in favour of using the euro instead of the national currencies of the EU Member States and the non-eu foreign currencies. After all, the euro is the single currency (even if not all of the EU Member States are part of the eurozone) and the Union s monetary reference. Further analysis is needed as for the currency and the payment of interest due before drawing any definitive conclusions. Verification of claims In order to facilitate the verification of claims, the following options could be considered (please note that the options below are not mutually exclusive): (d) 'Tag' eligible depositors when account is opened and then regularly keep up to date this information on account statements. (e) Payout under reserve of later reclamation verification only after payout (f) Simplify eligibility criteria (see Questions 13-16) (g) Harmonise eligibility criteria (see Question 12)

20 18 (h) Introduce a de-minimis rule (i.e. deposits below a certain size, e.g. 10 would not have to be paid out) (i) Limit or abandon set-off (see above) Question 30: Which solution would you prefer? Please provide reasons. Would you prefer another option? Please describe. Repayment with the possibility of rectification is the only solution which is acceptable. The impossibility of rectification runs counter to the feeling of honesty. In the end, the depositors must receive the exact amount they are entitled to receive. If an error has been made, it seems only fair to provide the possibility of rectification. This is a two-way solution, for it applies to amounts paid out that are either too big or too small. In addition, it must be possible to correct situations which are intolerable (e.g. abuse or fraud). A de minimis approach may be handy, but is hard to defend from a social point of view and from the point of view of perception and image. A de minimis clause does not seem to be recommendable, given the strong social basis of a deposit-guarantee scheme (i.e. protect the small saver). Application for reimbursement In order to facilitate the application for claims, the following options could be considered: (a) Retain current approach (depositors may have to take initiative, to fill in application forms and send them electronic processing and own initiative payment within discretion of Member States) (b) Payments by DGS on their own initiative without need for applications only electronic request to depositors asking them to indicate new account or payment to the same account whenever feasible Question 31: Would you prefer one of these solutions? If so, on a voluntary or mandatory basis? Please provide reasons. Would you prefer another option? Please describe. The purpose of any protection system should be to function with maximum efficiency in case of an accident. Wherever necessary and possible, the procedures for deposit declaration and verification, as well as those for repayment, should be improved. Electronic channels (used among other things for the declaration made by depositors) can be very useful in this respect. However, it is up to the depositors to inform the DGS of their claim, and this is another element which contributes to certainty and verifiability (also for the savers). Involving DGS at an early stage

21 19 In order to involve DGS at an early stage, it could be considered to require competent authorities to inform DGS either if appropriate (current approach) or by default when triggering of DGS becomes likely. Question 32: Which solution would you prefer? Please provide reasons. Would you prefer another option? Please describe. If an accident seems unavoidable, the DGS obviously must be informed and called upon at an early stage. It goes without saying that it must be possible to duly take into account the specific circumstances that are typical for a particular case as well as the specific legal competence of the different authorities concerned. Information exchange between banks and schemes In order to improve information exchange between banks and schemes it could be considered to recommend or require that DGS have access to relevant banks' records when DGS are informed by competent authorities and that DGS and their member banks have a common interface to quickly exchange information Question 33: Which solution would you prefer? Please provide reasons. Would you prefer another option? Please describe. The flow of information towards the DGS must be as smooth as possible. The recent amendment made to the EU Directive explicitly states that the Member States must ensure that the deposit-guarantee schemes regularly test their systems and that they will be informed if the authorities concerned detect problems within a credit institution which may lead to an intervention from the deposit-guarantee scheme. One should first have a look at the experience gained on the basis of this provision before considering further measures to be taken. The right data must be readily available. Within this context, it is up to the Member States to ensure an efficient functioning so as to comply with the national and European regulations (as for the terms of repayment among other things). Proven capability of DGS to handle payout situations effectively In order to ensure that DGS are capable to deal with payout situations, the following options could be considered: (a) Retain current approach (stress testing required in general) (b) Require DGS to regularly disclose the amount of ex-ante funds, their workforce and the result of regular stress testing exercises (c) Make such disclosure (as referred to under point b) a precondition for cross-border services or establishment of branches (d) Regular peer review among DGS

22 20 Question 34: Which solution would you prefer? Please provide reasons. Would you prefer another option? Please describe. Just as in the answer to question 33, one can refer to the same new passage in the recent amendment made to the Directive (i.e. the obligation for the Member States to carry out tests on a regular basis). It seems recommendable to wait and see what will be results of this new provision. The Belgian protection scheme has a significant ex ante character. Each year, the Protection Fund for deposits and financial instruments publishes a report which, among other things, contains a survey of the composition and evolution of the resources available. In Belgium, this information consequently is already available to the public. The following options could be considered: Topping-up arrangements (c) Retain current approach (topping up within discretion of Member States; host country topping up regulated in some detail by the Directive (Annex 2) but home country topping up permitted) (d) Make topping up mandatory in whatever form (e) Recommend home country topping up (f) Making home country topping up mandatory (g) Making host country topping up mandatory (h) Discontinue topping up Question 35: Do you consider topping up a problem? If so, which solution would you prefer? Please provide reasons. Would you prefer another option? Please describe. It has been pointed out in the answers to the different questions above that a full harmonisation of the coverage modalities is highly desirable. If such a harmonisation can be achieved, the difficult question of topping up will be solved almost automatically. Cross-border cooperation between DGS It could be considered that a DGS in a host country acts as a single point of contact for depositors at a branch in the host country. This could encompass features such as post box services, advice in the host country s language or being a paying agent for the home country DGS. Question 36: Which solution would you prefer? Please provide reasons. Would you prefer another option? Please describe. If an accident happens in a bank with branches in other Member States, cross-border cooperation between deposit-guarantee schemes would be highly recommendable. This cooperation can rely on

23 21 MoUs dealing with the concrete aspects. The Belgian protection scheme has already gained some experience in this field and continues its efforts for promoting this way of working. The ultimate financial responsibility as for branches of course still lies with the home country system in the current EU constellation. Level of funding of DGS On top of improving the financing mechanism (Question 39) and a possible introduction of a pan- EU DGS (Questions 17-19), it could be considered to recommend or require a target level (certain percentage of deposits) for ex-ante funds, ex-post contributions and alternative means of financing (e.g. borrowing). A maximum level for the contribution of banks could also be considered. Question 37: Which solution would you prefer? Please provide reasons. Would you prefer another option? Please describe. First and foremost, the DGS coverage modalities must be harmonised. If a sufficient level of mutual adjustment has been reached in this respect, next steps can be considered and examined. Aspects relating to the financing could be dealt with within this framework. Sticking to a logical sequence of thinking preserves maximum chances for progress. It goes without saying that attention also must be paid to the respective obligations, as for contributing to the DGS (banks under home country law and branches from other countries), of banks which compete on the same national market. Discrepancies pertaining to the burden of financing the DGS are not neutral with respect to competition. Risk-adjustment of contributions to DGS It could be considered to introduce risk-based contributions on a voluntary or mandatory basis. Particular models could be recommended or required. Question 38: Would you prefer introducing risk-based contributions? Which models would you envisage? Please provide reasons. Please describe. See the answer to question 37. Anyhow, the need for and the possible consequences of risk-based contributions first should be analysed more into detail before one starts considering their application. One of the things attention must be paid to, is the possibility of a number of counterproductive effects as well as the importance as compared to the approach in the field of prudential supervision and requirements (as for the own capital ratio among other things). Funding mechanisms It could be considered to make ex-ante funding mandatory and to require alternative short-term (interim) financing or long term borrowing in case of need. Question 39: Which solution would you prefer? Please provide reasons. Would you prefer another option? Please describe.

24 22 If you prefer interim financing, please describe how and by whom such financing should be provided. See the answer to question 37. The Belgian system is based on ex ante financing in combination with additional aspects of financing. Question 40: Are there any other issues that have not been mentioned above but should be dealt with in the context of the review of the DGS Directive? If so, please describe the problem and its different impacts as precisely as possible.