11 February 2020
The European Banking Authority (EBA) published today its third and final Opinion addressed to the European Commission on the implementation of the Deposit Guarantee Schemes Directive (DGSD) in the EU. The Opinion focuses on deposit guarantee schemes (DGSs) funding and uses of DGS funds and proposes a number of changes to the EU legal framework, aimed at strengthening depositor protection, enhancing financial stability and reinforcing financial resilience of DGSs.
In its Opinion, the EBA assesses 33 different topics related to DGS funding and uses of DGS funds and sets out 23 proposals on how to improve current EU legal framework.
In particular, the EBA calls for the need to clarify in the DGSD what funds should count towards the DGS’s available financial means (i.e. ex-ante funds), and when different DGS funding sources (including loans) can be used and under what conditions. The Opinion also addresses the need to introduce more transparency in relation to the reporting of DGS funds, more consistency in the approach to payment commitments, and more precision in the DGSD in relation to how DGS funds should be invested.
In addition, the Opinion recommends the need for the Commission to consider further the consequences of the recent General Court ruling in the Tercas case, concerning the use of DGS funds to prevent failure of credit institutions and the ceiling up to which DGS funds can be used for such failure prevention. The Commission should also consider introducing in the EU framework the possibility to use failed institution’s assets to repay depositors.
No changes are proposed to the current DGSD provisions in relation to the minimum target level for the ex-ante funds, the target level basis and the possibility for DGSs to continue collecting contributions above the minimum target level. The Opinion also recommends that there is no need for changes in relation to contributions from third country branches, or immediate changes to the risk-based contributions based on the assessment of their impact on different business models.
The third EBA Opinion on DGS funding and uses of DGS funds follows the first Opinion on eligibility of deposits, coverage level and cooperation between DGSs, published in August 2019, and the second Opinion on DGS payouts, published in October 2019. In the three Opinions, the EBA assessed 115 topics and proposed 81 improvements to the current EU legal framework with the aim of further strengthening the depositor protection framework, improving depositor information, reinforcing operational effectiveness of DGSs, harmonising approaches across EU Member States and, ultimately, enhancing financial stability and ensuring that depositors are well protected.
The proposals in the first Opinion included, among others, changes to the current framework to ensure that across the EU depositors are protected by one of the EU DGSs, even if they hold their deposits at a branch of a credit institution from a non-EU country. Conversely, the Opinion proposed that EU DGSs should not protect deposits placed with branches of EU credit institutions operating outside the EU – this is particularly relevant in relation to the UK’s withdrawal from the EU. The Opinion also put forward a number of improvements to how depositors are informed about DGS protection, and proposed to consider expanding the list of deposits eligible for protection, including deposits made by public authorities and those held as deposits by financial institutions on behalf of their clients. No changes were proposed to the current coverage level of EUR 100,000.
The second Opinion proposed changes aimed at ensuring that depositors are not unduly left without access to their funds when the decision that deposits have become unavailable has not (yet) been made by the authorities. The Opinion proposed that, in such instances, depositors should have access to an appropriate daily amount from their deposits. Similarly, the EBA recommended that the EU framework could benefit from more clarity on DGS payouts where there are money laundering/ terrorism financing concerns. Throughout the Opinion, the EBA underlined the importance of enhancing depositor protection, and clearly informing depositors about the most relevant features of such protection, in normal times, as well as during a DGS payout. Finally, the Opinion proposed further work to establish the best way to reimburse depositors who have placed deposits with credit institutions protected by DGSs other Member States.
Article 19(6) DGSD requires the EBA to support the EU Commission in its development of a report on the progress towards the implementation of the DGSD. The Opinion on DGS funding and uses of DGS funds is the third part of the EBA’s fulfilment of this mandate, which should be read alongside two other Opinions – on eligibility of deposits, coverage level and cooperation between DGSs, and on DGS payouts.
The EBA invites the Commission to consider the proposals outlined in the Opinions when preparing a report on the implementation of the DGSD to be submitted to the European Parliament and the Council.