Directive on Deposit Guarantee Schemes (DGS) 23/01/2015
Background: key steps July 2010 Commission legislative proposal September 2010 Start of negotiations in Council May/June 2011 ECON report / Council General Approach Sep-Dec 2011 Political & technical trilogues (no agreement) February 2012 EP Plenary vote (first reading) Mar 2012 - Aug 2013 Negotiations blocked in Council Sep-Dec 2013 Political & technical trilogues (agreement) 16 April 2014 Adoption of the new Directive (2014/49/EU) 12 June 2014 Publication in Official Journal 2
Application of the Directive Directive shall apply to: Directive shall not apply 1 to: Statutory DGS 2 --- Contractual DGS that are officially recognised as DGS Institutional Protection Schemes that are officially recognised as DGS Contractual schemes that are not officially recognised as DGS Institutional protection schemes that are not officially recognised as DGS Member banks of those schemes 3 --- 1 Except for some information requirements of the Directive (Art.14) 2 Each MS shall ensure that within its territory one or more DGS are introduced and officially recognised (Art.3) 3 No credit institution may take deposits unless it is a member of a scheme officially recognised in its home MS (Art.3) 3
Level of coverage Harmonised level of 100 000 per depositor per bank applicable in all Member States and EEA countries Grandfathering: countries with higher coverage levels (e.g. Norway) may apply those levels until end-2018 afterwards, 100 000 will apply No separate coverage per different brands of the same bank Temporary high deposit balances: Member States shall ensure coverage above 100 000 for deposits arising from housing transactions (e.g. sale of residence) or from specific life events (e.g. marriage, divorce, inheritance) Covered in full or partially Covered from 3 up to 12 months 4
Scope of coverage Covered Not covered Depositors Individuals, all enterprises (small, medium, large) Financial institutions, public authorities* Products Deposits in non-eu currencies (USD, CHF, etc) Debt certificates, structured products, etc * Deposits of small local authorities (with annual budget up to 500 000) may be covered by DGS 5
Covered deposits in the EU 6
Payout deadline (1) Original from 1994 3-9 months Past from March 2009 3 months Present from 2011 4-6 weeks Future from 2024 7 working days 7
Payout deadline (2) Payout deadline will be gradually reduced from the current 20 working days to 7 working days in three phases: 15 working days from 2019 10 working days from 2021 7 working days from 2024 During the transitional period (until end-2023), depositors in need may ask for so-called "social payout", i.e. limited amount to cover their costs of living to be paid within 5 working days 8
Factors facilitating faster payouts Banks Information obligation towards DGS, tagging eligible deposits, providing single customer views Involving DGS at an early stage by compulsorily informing them if a bank failure becomes likely Supervisors Early access to banks records, making payouts by DGS on their own initiative (no applications from depositors) DGS Payout to depositors 9
Payout modalities Payout currency (for Member States to decide): the currency of the MS where the DGS (or the account) is located the currency of the MS where the account holder is resident the currency of the account the euro Depositors at branches in other Member States: will be paid out by the DGS in that MS (host DGS), acting as a "single point of contact" on behalf of the home DGS the host DGS will make this payout if the home DGS provides it with the necessary funding in advance (and, after the payout, compensate the home DGS for the costs incurred) 10
Financing (1) Ex-ante funding (at least 0.8% of covered deposits) to be reached by Member States within 10 years Extraordinary (ex-post) contributions (up to 0.5% of covered deposits annually) Mutual borrowing facility on a voluntary basis (up to 0.5% of covered deposits of the borrowing scheme) Alternative funding arrangements (e.g. borrowing from governments or financial markets) 11
Financing (2) In principle, the target funding level for DGS is at least 0.8% of covered deposits to be reached in 10 years, but COM may approve a lower target level, but not lower than 0.5% of cov dep, e.g. in case of the banking sectors dominated by large banks if, during the build-up period, the DGS has made cumulative disbursements in excess of 0.8% of cov dep, MS may extend this period by max 4 years In principle, ex-ante funds of DGS should consist of cash, deposits, and low-risk liquid assets, but max 30% of the funding can be made up of payment commitments exceptionally, bank levies paid to the State budget may also count 12
Financing (3) 0.8% of covered deposits DGS funds in 10 years ( billion) Current DGS funds vs. the target funding level (data as of end-2011) 13
Risk-based contributions Mandatory for all Member States: contributions to DGS will reflect individual risk profiles of member banks riskier banks will have to pay more EBA will elaborate guidelines on the technical aspects of risk-based contributions (calculation methods, risk indicators, risk classes, thresholds, percentages, etc) Some exceptions: option to apply lower contributions to some schemes (IPS) or low-risk sectors; option to use own risk-based methods by DGS 14
Use of DGS funds Payout DGS funds shall be primarily used to reimburse depositors after a bank failure Resolution DGS funds shall also be used to finance the resolution of credit institutions + + Early intervention DGS funds may be used for alternative measures in order to prevent a bank failure 15
Early intervention by DGS Only if several conditions are met, for example: the resolution authority has not taken any resolution action the DGS has appropriate systems and procedures the ability of the member banks to pay immediately the extraordinary contributions etc Member banks must immediately repay the DGS funds used for early intervention: if the DGS needs to make a payout and its funds amount to less than 2/3 of the target level always, if the DGS funds fall below 25% of the target level as a result of the early intervention 16
Role of DGS in bank resolution DGS shall contribute to the resolution of a failed bank as a preferred creditor: the DGS intervention would only take place in the last instance, i.e. after bailing-in all unsecured creditors and using the financial means of the Resolution Funds DGS's contribution would be limited: up to the amount they would have contributed in insolvency up to the amount equal to 50% of the DGS target funding level 17
Depositor preference Creditor hierarchy (in insolvency and resolution): eligible deposits of households and enterprises (micro, small and medium companies) shall be preferred covered deposits, i.e. those protected by DGS up to 100 000, shall be super-preferred Bail-in: covered deposits will not be affected, as exempted from bail-in and the DGS will step in their shoes eligible deposits of those mentioned above, unlikely to be affected as the resolution fund can step in their shoes provided 8% of liabilities of the failed bank have absorbed losses 18
Bail-in: treatment of deposits/dgs 3. Alternative financing sources 2. 5% Resolution financing arrangement 1. 8% internal loss absorbtion Only after 5% of the financing arrangement's cap has been reached, and all unsecured and nonpreferred liabilities other than eligible deposits have been bail-in Resolution financing arrangement may provide loss absorption or capital injection of up to 5% of total liabilities 8% of total liabilities or 20% of RWAs to be absorbed by shareholders and creditors before the use of the resolution financing arrangement DGS (covered deposits) Households, micro, SMEs > 100,000 Senior debt & corporate deposits >100,000 Subordinated debt AT1 & T2 CET1 More bail-in or eventually alternative financing sources (private, public/esm) Resolution financing arrangement 5% of liabilities Internal absorbtion 8% of liabilities or 20% of RWAs (in order of hierarchy)* * Flexibility to depart from creditor hierarchy if not possible to bail-in the liability during the timeframe, would create contagion risks, lead to destruction in value, necessary to ensure continuity of critical functions. 19
Better information for depositors While depositing money at a bank, depositors will have to countersign a standardised information sheet containing all relevant information about deposit protection by the DGS The updated standardised information sheet will be sent by banks to their customers at least once a year Banks will be obliged to inform their depositors about DGS protection of their deposits on the statements of account Some restrictions on advertising on deposit products (only factual information, no referring to unlimited protection, etc) 20
Depositor information template 21
Next steps (1) Entry into force 2 July 2014 General transposition deadline for Member States 12 months after the entry into force (3 July 2015) Longer implementation period for some issues, e.g. social payout and risk-based contributions (May 2016) 3 years after the entry into force (by 3 July 2017) and at least every 5 years thereafter, EBA shall conduct a review of the guidelines on risk-based or alternative own-risk-based methods applied by DGS 22
Next steps (2) 5 years after the entry into force (by 3 July 2019), the Commission will submit to the European Parliament and to the Council: a report on the target fund level (assessing the appropriateness of the percentage set), the adequacy of the current coverage level, the impact of the early intervention measures on deposit protection, etc a report (+ legislative proposal, if appropriate) setting out how DGS may cooperate through a European Scheme to prevent risks arising from cross-border activities and protect deposits from such risks 23
Next steps (3) From 1 January 2024 onwards, the payout deadline will be shortened to 7 working days 10 years after the entry into force (by 3 July 2024), the available financial means of all DGS will reach a target level of at least 0.8% of covered deposits 24