EC sets out proposal to increase minimum protection for bank deposits to 100,000 €

The European Commission has put forward a revision of EU rules on deposit guarantee schemes that puts into action the commitments made by EU Finance Ministers on October 7th. The new rules are designed to improve depositor protection and to maintain the confidence of depositors in the financial safety net. In the first stage of the application of these new rules bank deposits protection will be increased to 50,000 €.

Directive on Deposit Guarantee Schemes (1994/19/EC), which had remained unchanged since 1994, is now being updated in order to respond to the ongoing financial crisis. The aim of such Directive was to protect a portion of depositors' savings and to ensure confidence into the banking sector, in order to avoid bank runs leading to severe economic consequences.

Under the new rules, the minimum level of coverage for deposits will be increased within one year from 20,000 € to 100,000 €, and initially to 50,000 € in the intervening period. Although these ceilings are established by EC rules, individual Member States can choose to add to these minimum levels. In addition, the payout period in the event of bank failure will be reduced from three months to three days.

This proposition comes after EU Finance Ministers agreed on October 7th 2008, that it is a priority to restore confidence and proper functioning of the financial sector, and committed to raise the level of deposit guarantees to 50,000 €, and many of them even to 100,000 €.

Ministers agreed to take all necessary measures to protect the deposits of individual savers and welcomed the intention of the Commission to bring forward urgently an appropriate proposal to promote convergence of deposit guarantee schemes.

The proposal will now pass to the European Parliament and the Council of Ministers for their consideration.

Main proposed amendments to the Directive on Deposit Guarantee Schemes

  • Level of coverage for deposits: Member States are required to increase the coverage level to at least 50,000 € and within a further year to at least 100,000 €. The current Deposit Guarantee Schemes Directive covers savings up to at least 20,000 €, although individual Member States can choose to increase this level. According to estimates, about 65% of eligible deposits are covered under the current regime. The new levels would cover an estimated 80% (with coverage of 50,000 €) and 90% (with coverage of 100,000 €) of deposits.
  • Co-insurance (i.e. where the depositor bears part of the losses) is abandoned: Member States must ensure that the deposit is reimbursed up to the coverage level. Under the current Directive, Member States have the option to decide that deposit guarantee only covers 90% of savings.
  • Reduction of the payout period: The time allowed for the deposit guarantee scheme to pay depositors in the event that a bank fails will be reduced to three days. Currently the period is three months, and can even be extended to nine months.

As Internal Market and Services Commissioner Charlie McCreevy said, these new rules aim to “strengthen Europeans' confidence in the safety of their deposits. The new rules go hand in hand with the commitment made by EU Finance Ministers only one week ago, and are another sensible and proportionate response to the financial turmoil we are experiencing."