On 17 December 2013, political agreement was reached by the European Commission, Parliament and Council on the recast of the Deposit Guarantee Scheme Directive (DGSD) after more than three years of negotiations. Reaffirming the €100,000 insurance limit for deposits, the recast further extends the coverage to temporary high balances up to three months in certain life situations such as the sale of a house.
This reform is one of the crucial pillars of financial stability along with the recently adopted prudential capital and liquidity requirements and bank recovery and resolution framework (BRRD). DGSs will now also play a significant role in resolution by supporting resolution measures to maintain access to deposits for insured deposits.
Significantly for the first time the DGSD will call for ex-ante funding by banks of up to 0.8% of the banks insured deposits to be collected over a period of 10 years. These contributions are to be raised taking account the specific risk profiles of banks. However, some concessions had to be made to Member States who are still facing the cost of the last crisis by allowing to extend their build-up period up to an additional 4 years. Also, Member States which can argue having a higher concentration of financial services in their jurisdiction may apply to set a lower target level no lower than 0.5% of covered deposits. In both cases the approval by the European Commission has to be sought.
The recast also enshrines an ambitious shortening of the payout period from 20 to seven days over 10 years. While difficult cases will be exempted from fast payout (e.g. dormant accounts, accounts subject to investigation), the Parliament was able to introduce the possibility of emergency payouts to customers to cover living expenses up to an appropriate amount to be defined by member states.
Some banks and their Deposit Guarantee Schemes will be severely challenged by the implementation of these measures in the immediate future since it will require banks to build comprehensive IT systems to calculate close to real-time payment instructions for DGS. In parallel, national schemes will have to ensure efficient payment processes after a bank failure to guarantee fast payout for millions of customers, ensuring monies go to the right recipients and for the right amount.
The recast also improves depositor information to ensure that they are aware of the key aspects of protection of their deposits by DGS. For instance, while depositing money at a bank, depositors will be obliged to countersign a standardised information sheet containing all relevant information about the coverage of the deposit by the responsible DGS. Banks will be obliged to inform their depositors about DGS protection of their deposits on the statements of account.
The agreement must now be confirmed by the Parliament and the Council.
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