In order to carry out its functions, a DGS needs access to funding. A DGS is funded by those institutions to which it provides deposit protection. If a single DGS covers all of the banks in a Member State, it will be funded by all of the banks in that Member State. A Member State might have a number of DGSs, in which case, each DGS will be funded by all the banks that are covered by it.
While DGS funding ultimately comes from those banks that are protected by that DGS, different funding models for DGSs have traditionally existed in the EU. The most recent Deposit Guarantee Schemes Directive (DGSD) harmonises DGS funding, so that now DGS funding works as follows:
(i) All DGSs should have a fund that is created in advance of a bank failure. Banks covered by those DGSs are required to pay levies into the fund over time.
(ii) Where a DGS does not have enough money at the time it has to protect deposits, it can raise extraordinary levies from all of its members to cover the shortfall.
(iii) Member States are obliged to ensure that DGSs have adequate alternative funding means in place to ensure that they can meet their liabilities to repay or protect depositors. In practice, this may, for instance, entail that the Member State provides a temporary State-funded backstop for its DGS.
(iv) DGSs are also allowed to borrow between each other or from other market participants or credit institutions. Therefore, if one DGS does not have enough money available immediately, it can borrow money from another DGS, market participant or credit institution, provided they are willing to extend such a loan.
In addition, when a DGS pays out depositors directly, it takes on their rights, and may recover some of the money from the estate of the bank that has failed (depending on the amount of losses and recoveries).
Covered deposits are those deposits that are eligible for protection by a DGS, and that are within the mandatory coverage limit per depositor. Not all deposits are "eligible" for DGS protection – for instance, the deposits of a financial institution such as a bank or insurance firm at another bank are not eligible for DGS protection. At the moment, the monetary coverage limit is generally €100,000 per eligible depositor (or its equivalent in local currency). DGSs also protect higher amounts, known as "temporary high balances", for a limited period of time, where the higher amount has occurred due to some life event such as the sale of a house, the awarding of compensation by a court, or the death of a relative.
Imagine an example in which Bank A has a deposit of €20,000 from Person A, a deposit of €100,000 from Person B, a deposit of €5,000 from Company A, a deposit of €200,000 from Company B, and a deposit of €50,000 from Insurance Firm A. The below table sets out how the DGS would protect deposits in the event that Bank A failed.
|Bank A||Ineligible deposits||eligible deposits of which covered deposits||eligible deposits of which are not covered|
|Insurance Firm A||€50,000||-||-|
|Total amount to be repaid if Bank A fails (€225,000)||€225,000||-|
|Total amount not repayable if Bank A fails (€150,000)||€50,000||-||€100,000|
The level of covered deposits also represents the potential liabilities or exposure of a given DGS. Since a DGS only has to repay covered deposits, the aggregate level of covered deposits in the system will determine the maximum potential exposure of a DGS. Obviously, it is incredibly unlikely that all of the deposit-taking banks in the system would fail at the same time, and, therefore, the maximum potential exposure of a DGS is only generally indicative of the actual level of repayments that a given DGS will ever have to make.
DGSs require funding to carry out their role. While different funding models were used by different DGSs in the EU, the most recent (2014) DGSD harmonises funding of DGSs in the EU. DGSs must now raise levies from their bank members to build up a pool of funds that will be available in advance to the DGS. The DGS must raise funds equivalent to at least 0.8% of the covered deposits it is protecting (although in some exceptional cases, the target level can be as low as 0.5% of covered deposits). Funds raised directly, or indirectly, from the banks, constitute qualified available financial means (QAFM) and count towards reaching the minimum target level of 0.8% of covered deposits. DGSs also have the possibility to raise funds not from banks, but for example, take a commercial loan. Thus, DGSs may also hold funds which have not been contributed by the banks. Such funds are called ‘other available financial means’ (other AFM) and they do not count towards the target level of 0.8% of covered deposits. Taken together, QAFM and other AFM add up to the DGS’s available financial means (AFM).
Banks are told by their DGS at least annually (provided that the DGS has not already reached the target level required under the DGSD) what amount of money they need to pay into their DGS in the form of a levy. In most cases, this will be in the form of cash. In some instances, DGSs are also allowed to accept "payment commitments" of up to 30% of the levy owed. Payment commitments are legally binding agreements by a bank to pay the money when requested by the DGS, and they are backed by highly liquid collateral which the DGS can use if the bank does not meet its commitment to pay when requested.
All banks, as well as any credit institutions allowed to take deposits, authorised in a Member State must be members of an official DGS. In addition, DGS coverage can be extended to other types of financial institutions, such as credit unions. DGSs also cover the branches of their member institutions that are set up in other Member States (although the DGS in that other Member State will assist them in making any DGS payments where necessary). DGSs can also cover the depositors in branches of non-EU banks, if the Member State where that branch is established has assessed the protection provided by any deposit insurance scheme in that non-EU country and concluded that it is not equivalent to the protection provided by the EU DGS framework.
While an individual DGS might cover a large notional amount of covered deposits, the possibility of multiple large bank failures occurring at the same time is very remote. Therefore, the amount of available financial means needed has been set to ensure that sufficient funds are available to deal with most failures, while not taking too much money out of the financial system for an eventuality that occurs rarely.
The EBA wants to ensure that depositors in the EU have access to as much relevant information as possible. In order to facilitate this, the EBA is publishing these explanations, along with the details of the covered deposits and available financial means in each DGS in the EU. This aligns with the goal of increasing transparency for depositors and members of DGSs. For depositors, it highlights situations where the DGSs to which their institutions are affiliated could improve their level of pre-funded resources, while acknowledging that the deposit protection of €100,000 remains fully in place. Finally, it also allows policymakers and legislators to make informed choices in drawing up policies for deposit protection in the EU, and analysts, academics and researchers in carrying out analysis of DGSs in the EU.
For various reasons outlined in more detail here, different DGSs will have different levels of funding available to them. Most of them are in the process of building up their funds by levying the institutions in respect of which they provide coverage. DGSs also have various alternative funding arrangements available to them in the event of a draw on their resources.
A DGS which currently appears not to have a large amount of available financial means might raise a large amount in levies over the course of the next year and, therefore, change that situation rapidly. Similarly, a DGS which currently appears to have a large amount of available financial means might have to make payouts to depositors that would reduce its amount of available financial means.
The EBA fully expects that the available financial means of each DGS will fluctuate over time. In all cases, the aim of the DGS, the Member State, and the EU is that depositors have adequate protection for their deposits.
No. The figures listed in the below table represent a point-in-time description of the available financial means of a given DGS. For the reasons outlined above, this figure will fluctuate over time. As a result, the actual current level of available financial means in itself is not a sign of a safer DGS. In any case, DGSs have access to alternative funding sources beyond their immediate available financial means.
Although alternative funding means are available to EU DGSs, one of the goals of the new DGSD was to move all EU DGSs towards a model under which they would build up a harmonised level of funds to facilitate the protection of depositors in case of bank failure. It is important, therefore, to see to what extent DGSs are meeting this goal of building up their funds. The failure to build up such a fund over time does not mean that the protection provided by that DGS is lessened, but it does mean that the DGS is not complying with its obligations. Banks and depositors should be aware of the available financial means of the DGSs to which they are affiliated.
Yes. In principle deposits are safe up to the covered amount of generally €100,000 per eligible depositor as there are several safeguards to guarantee the payout of a triggered DGS (ex ante and ex post contributions, alternative financing arrangements). The protection of covered deposits is one of the primary goals of the authorities, the EU, and the legislative framework when dealing with bank failures.
Yes. A downloadable Excel spreadsheet providing the data for all EU DGSs together with all of the additional explanatory information can be found here. The spreadsheet also contains links to the relevant national websites of each DGS.
The EBA will be publishing this data together with any explanatory information or analysis on a yearly basis.
For any queries on the data or the accompanying information please contact the EBA through the following email: firstname.lastname@example.org