CROSS-BORDER AND REGIONAL ISSUES 

Abstract 

In general, relevant laws, regulations, and other provisions applicable to banks, their 

customers, and deposit insurers, are that of the bank’s country of charter or incorporation. 

Circumstances change if a bank operates branches in other jurisdictions, or provides 

services on a cross-border basis to customers located abroad. Depending on the volume 

of these activities, the implementation of appropriately adapted policies by home- and 

host-country deposit protection schemes can be crucial for the effective operation of 

deposit protection arrangements and for the achievement of public-policy goals. 

Issues that require particular consideration from a cross-border and regional perspective 

are: membership, coverage, funding, interrelationships between safety-net participants 

and, in the case of failures, the process of reimbursing depositors and the recovery of 

assets. This paper identifies relevant cross-border and regional issues from the 

perspective of deposit protection, and will examine the trade-offs associated with a 

variety of approaches. It also includes considerations with regard to the process of 

accession to the European Union (EU) by candidate countries. 
 

 

 

 

CROSS-BORDER AND REGIONAL ISSUES 

In general, relevant laws, regulations, and other provisions applicable to banks, their 

customers, and deposit insurers, are that of the bank’s country of charter or incorporation. 

Circumstances change if a bank operates branches in other jurisdictions, or provides 

services on a cross-border basis to customers located abroad. Depending on the volume 

of these activities, the implementation of appropriately adapted policies by home- and 

host-country deposit protection schemes can be crucial for the effective operation of 

deposit protection arrangements and for the achievement of public-policy goals.1 

Issues that require particular consideration from a cross-border and regional perspective 

are: membership, coverage, funding, interrelationships between safety-net participants 

and, in the case of failures, the process of reimbursing depositors and the recovery of 

assets. This paper identifies relevant cross-border and regional issues from the 

perspective of deposit protection, and will examine the trade-offs associated with a 

variety of approaches. It also includes considerations with regard to the process of 

accession to the European Union (EU) by candidate countries.2 

In most countries, deposit taking is primarily a domestic business. However, crossborder aspects of this business are increasing in many jurisdictions (for example, efinance developments). In some countries, cross-border aspects play a considerable role 

in the design of deposit insurance arrangements. This is the case, for example, if a 

banking system is characterised by a strong presence of foreign-bank branches. In weak 

banking systems, especially after a crisis, the outflow of deposits to foreign countries 

may have to be taken into account when establishing or reforming deposit insurance 

arrangements. Special considerations may apply in regions where economies are closely 

related—for example, North America—or closely integrated—for example, the EU. 

The considerations presented in this paper regarding cross-border claims and recoveries 

of foreign branches also are applicable to domestic banks with foreign subsidiaries and 

domestically chartered foreign-bank subsidiaries, but these are not the focus of this 

3 paper. 

1

 This paper represents the work of the Subgroup on Cross-Border and Regional Issues. The Subgroup is 

comprised of representatives from Germany (coordinator), Canada, Hungary, Mexico and the United 

States. For the purposes of this paper, the home country is the jurisdiction of the bank’s head office; the 

host country is the jurisdiction where the foreign branch is located. 

2

 The EU minimum requirements for deposit insurance and other regulatory aspects are harmonised and the 

responsibilities for deposit protection lie primarily with the home country. 

3

 A bank’s foreign subsidiary is in general separately chartered, and supervised in the same way as 

domestic banks. The only differences are that its shareholder is a bank located in a different country and 

that the parent bank should be subject to consolidated supervision by the parent bank’s supervisory 

authority. For deposit protection purposes, the subsidiary is treated like domestic banks. Cross-border 

issues arise if the subsidiary has transferred assets and liabilities to foreign jurisdictions or otherwise 

established business relationships, for example in derivative markets, that may produce claims and 

obligations with counter parties in other countries. 
 

 

 

Membership Issues 

Policy approaches with regard to the membership of banks from foreign countries in 

deposit protection schemes vary widely. Foreign branches could be included in or 

excluded from a host-country deposit protection scheme. Host countries also could 

choose to prohibit foreign branches from accepting deposits that are covered by the hostcountry deposit protection scheme unless the branches participate in this scheme and 

comply with entry criteria. Another approach is to waive or limit protection to 

supplementary coverage in circumstances where the deposit protection scheme of the 

bank’s home country is recognised by the host country. Finally, countries may require 

banks from foreign jurisdictions to set up legally separate subsidiaries if they wish to 

accept covered deposits. 

It may not be necessary to include foreign-bank branches in host-country deposit 

protection schemes to achieve public-policy objectives when foreign banks play a limited 

role in a country’s financial system. Excluding foreign-bank branches may facilitate the 

administration of the scheme and prevent it from covering deposits at banks that it may 

not be able to supervise adequately. A drawback of this policy is that consumer 

protection may be weakened because depositors may be uncertain about the coverage 

provided for their deposits. 

Some countries choose to include all foreign branches in their deposit insurance scheme. 

In countries where foreign-bank branches have a large market share, the inclusion of 

foreign branches may be considered necessary to achieve stated public-policy objectives. 

The mandatory inclusion of foreign branches in the host-country deposit protection 

scheme ensures that all eligible depositors benefit from deposit protection. However, this 

strategy could threaten the viability of the host-country deposit protection system, if the 

respective bank and its foreign branches are not subject to an adequate supervisory 

regime. To ensure adequate supervision and the financial strength of foreign branches, 

supervisors may require foreign banks to pledge assets as a capital substitute, and to 

conform with capital adequacy and other regulatory requirements of the host country. 

If special membership or entry criteria for deposit protection schemes exist, foreign 

branches should comply with them in order to preserve the financial strength of the 

system and competitive equity. Accession criteria could include supervisory capacity to 

carry out audits at the branch- or head-office level, and the possibility of receiving 

information from the head office or the home country’s supervisor. 

It may be appropriate to recognise the coverage already provided through membership in 

a home-country scheme, if this scheme also covers deposits collected by foreign 

branches. In such cases, the relevant host-country authorities (generally banking 

supervisors) would have to be informed about the level of coverage provided by the 

branch’s home-country scheme during the licensing or chartering process, if the coverage 

of deposits is mandatory. Authorities should be given the ability to not recognise the 

branch’s home-country deposit protection scheme, if they conclude that the protection 

policies of the home-country scheme are inadequate. 
 

 

 

Membership in a deposit insurance scheme for banks that only collect deposits directly 

from customers abroad without having established a branch or a subsidiary (that is, a 

physical presence) in the foreign jurisdiction generally is not appropriate. Cross-border 

deposits generally are protected by the bank’s home-country scheme (in cases where one 

exists), since deposits are booked in the home country where the bank is physically 

located and licensed to operate. In all cases, depositors should be appropriately informed 

of whether the home-country deposit protection scheme, the host-country deposit 

protection scheme or a combination of both is applied. 

Coverage Issues 

Deposits that are collected by a bank directly from depositors in other countries (for 

example, via the Internet) may or may not be covered by the bank’s deposit protection 

scheme. If a bank has established a branch in a foreign country, a wide spectrum of 

coverage arrangements for the branch’s deposits may apply. 

The coverage of deposits of foreign branches that only participate in the host-country 

deposit protection scheme is, in general, determined according to that scheme’s 

regulations. This does not rule out that the scope and level of coverage may be fixed with 

a view to the coverage provided in other countries, so that, in addition to domestic 

factors, external aspects are taken into account. Coverage that is comparable to that in 

competitor countries may be one element of an overall strategy to strengthen the financial 

system and to stop the outflow of deposits, especially in weak banking systems and 

banking systems that have experienced a recent crisis. However, it is important to avoid 

a competitive process by which national deposit insurance schemes adapt to the ones with 

the most encompassing features and the lowest premiums or levies without taking due 

regard of the country’s domestic situation. Such a process may have negative 

implications for the viability of the protection scheme and could jeopardise financial 

stability. 

The determination of an appropriate coverage policy could become more complex if the 

bank’s home-country scheme also covers deposits raised by foreign branches in foreign 

jurisdictions. The coverage of deposits at foreign branches may be appropriate because 

the branch is a legal part of the bank and its solvency and liquidity cannot be separated 

from the soundness of the bank itself. Furthermore, domestic customers of the bank 

doing business with its foreign branches might expect to be protected in the same manner 

as that provided when they deal with the bank’s head office. If the coverage of the homecountry scheme is lower or less encompassing than the coverage provided by the hostcountry scheme, the branch could be given the opportunity to top-up the home-country 

coverage; this supplementary coverage could be provided by the home- or by the hostcountry deposit protection scheme. On the other hand, if the coverage of the homecountry scheme of the branch is higher or of broader scope, the branch’s customers 

would benefit from more-encompassing protection than that provided by the host-country 

scheme. Limitations may run counter to policies that allow free provision of financial 

services on a cross-border basis. 
 

 

 

 

 

 

If a branch that already benefits from coverage by its home-country scheme is obliged, or 

granted the right, to join a host-country scheme, care should be taken to ensure that 

insured deposits are not covered twice. This might require appropriate provisions in 

contracts, statutes and laws, and possibly mutual agreements between the deposit 

protection schemes concerned. 

In the EU, the home-country deposit protection scheme of a bank also covers deposits of 

the bank’s branches in other EU jurisdictions according to the deposit protection 

directive.4 This directive specifies minimum features for deposit protection schemes in 

member countries and supplements the overall harmonisation of banking supervisory 

regulations in the EU. As the minimum coverage in the EU already is provided by the 

branch’s home-country scheme, the branch cannot be obliged to join the host-country 

deposit protection scheme. If the coverage of a host-country deposit protection scheme is 

higher or of broader scope, branches may choose supplementary coverage by this 

scheme, provided that they accept the membership conditions of the host-country 

scheme. 

For candidate countries preparing for accession to the EU, transitional arrangements with 

lower initial coverage are under consideration. With lower initial coverage there may be 

a risk that if an accession country were allowed to export its lower deposit guarantee 

coverage to another member state with higher coverage, depositors could be 

insufficiently protected. To solve this problem, branches of banks from accession 

countries could be requested by the host country to top-up to the minimum level of the 

home-country scheme during the transition period. This arrangement could be a safety 

device to ensure that an adequate, minimum deposit guarantee level is offered in all 

member states. 

On the other hand, there may be requests for a limited export prohibition ban in the EU 

toward certain accession countries. This means that an accession country may request 

EU branches operating in its territory to not exceed the lower initial minimum EU deposit 

guarantee during the transitional period. Implementation of this approach could be 

difficult if the transitional export ban would have to be altered by amending the law in the 

branch’s home-member state. Furthermore, it should be taken into account that the 

freedom of establishment only may be restricted in the EU for a limited period and on 

exceptional grounds. 

Funding Issues 

If deposits at foreign branches are covered by the bank’s home-country deposit protection 

scheme, the same funding mechanisms as for the head office of the bank could apply to 

its foreign branches. If deposits at foreign branches are not covered by the bank’s homecountry scheme, but the foreign branch belongs to the deposit protection scheme of the 

host country, the branch could be considered for funding purposes as a separate legal 

4

 The EU Directive on Deposit Guarantee Schemes (Directive 94/19/EEC) is available in the Internet under 

the following address: http://europa.eu.int/eur-lex/en/lif/dat/1994/en_394L0019.html 
 

 

 

 

 

entity; levies or premiums could be collected according to balance-sheet data, the level of 

business and deposits, or other relevant branch-specific information. Special adaptations 

could be necessary if premiums are assessed ex-ante on a differential (risk-adjusted) 

basis. As the financial condition of the branch can not be separated from the situation of 

its head office, in principle the risk profile of the whole bank would have be taken into 

account for the calculation of differential levies and premiums. If there is a lack of 

adequate data for a differential premium system, the branch could be assessed under 

criteria consistent with that applied to domestic banks. This could be an appropriate 

approach if the branch is required to have endowment capital or to pledge assets as a 

substitute for its own funds. 

More-complex approaches may be necessary if the basic coverage of the bank’s head 

office is provided by the home-country scheme, and supplementary coverage would be 

granted by a host-country scheme. In this case, the calculation of funding requirements 

for the supplementary coverage often could not follow the standard approach for 

domestic banks. It could be necessary to develop special funding formulas for 

supplementary coverage, possibly adapted to the financing approach of the home-country 

scheme (especially ex-post or ex-ante financing; flat-rate or differential (risk-adjusted) 

premiums). Regardless of the concrete formula developed, the protection already 

provided by the home-country scheme should be recognised in the determination of 

levies and premiums to avoid double charging. 

Interrelationship Issues 

Cross-border deposit taking may require close interrelationships among safety-net 

participants in different jurisdictions. In general, information received by safety-net 

participants in other jurisdictions should be subject to strict confidentiality rules that 

comply with international standards and that are not more lenient than the rules for 

information received by other domestic safety-net participants. If this is assured, all 

relevant information could be exchanged between deposit insurers in different 

jurisdictions. In addition, it may be helpful if deposit insurers were able to benefit from 

information channels established between supervisory authorities in different 

jurisdictions. Relevant information concerning banks and branches in other countries 

could, where appropriate, be requested by contacting the deposit insurer. In some cases, 

it also could be useful to exchange information directly between deposit insurers and 

other safety-net participants in foreign jurisdictions. In any case, foreign deposit insurers 

should receive all information necessary to enable a prompt reimbursement of depositors. 

If a foreign branch belongs to the deposit protection scheme of the host country— 

possibly only for supplementary coverage—it could be appropriate to establish 

information channels between this scheme and the home-country deposit protection 

scheme. If the host-country scheme is a risk minimiser, and has the power to audit banks 

belonging to its scheme, including foreign branches, it may detect facts that also are 

material from a supervisory point of view. Such information could be made available to 

the supervisory authority, even if it is located in a different jurisdiction under 

information-sharing agreements. To fulfil its task as a risk minimiser, it also may be 

appropriate for the deposit insurer to require the provision of relevant information 
 

 

 

 

 

concerning the whole bank and to verify such information with the home country’s 

supervisory authority. 5 If a crisis occurs at the bank or the branch, the information 

sharing between safety-net participants also could include the host-country deposit 

insurer. In any case, the host-country deposit insurer should be informed early when a 

bank fails. 

If the foreign branch belongs to the host-country deposit protection scheme only for 

supplementary coverage, while basic coverage is provided by the home-country deposit 

protection scheme, regular contacts between the home- and the host-country deposit 

protection scheme also might be useful. Close cooperation may be necessary during the 

reimbursement process after a failure has occurred. Moreover, if bankruptcy proceedings 

were to be initiated, all relevant deposit insurers would have to be informed immediately 

about the closure of the bank, including its foreign branches. 

Also in the case of the accumulation of cross-border deposits without the establishment 

of a branch, communication between the home-country deposit insurer and the 

supervisory authority of the depositors jurisdiction may be appropriate. This issue could 

be especially important in a crisis, if the bank has a strong position in the foreign market. 

Claims and Recovery Issues 

In general, the determination of claims and the recovery of assets are more complex for 

foreign branches than for domestic banks. As foreign branches are a legal part of a bank 

chartered in a different jurisdiction, cross-border transfers of assets and liabilities can be 

easily executed and occur during the normal course of a bank’s business. If such a bank 

fails, and deposits at foreign branches have to be reimbursed by the relevant home- or 

host-country deposit protection scheme, the proper recognition of rights of set-off and 

collateral arrangements may complicate the determination of the depositors’ claims. 

Furthermore, subrogation may imply that assets have to be recovered by the deposit 

protection scheme in foreign jurisdictions. The issue becomes even more complex when 

the branch’s home-country deposit protection scheme provides the basic coverage and the 

host-country scheme provides supplementary coverage. 

Deposit protection schemes should analyse cross-border legal issues and develop 

solutions from a cost-benefit perspective for potentially major legal disputes before 

failures occur. In some cases, memoranda of understanding between deposit protection 

schemes might contribute to the resolution of complex legal issues related to bank 

failures. Deposit protection schemes should have quick access to legal advice and try to 

avoid unresolved legal issues and disputes, which may lead to delays in the 

reimbursement of depositors. 

5

 See Annex II (a) of the EU Directive on Deposit-Guarantee Schemes (Directive 94/19/EC). 
 

 

 

Conclusions 

Funds collected from depositors located in other countries where a bank has not 

established a branch or subsidiary normally are covered by the deposit protection scheme 

of the bank’s home country. Deposits at foreign branches may be protected by the bank‘s 

home-country deposit protection scheme, by the host-country protection scheme, a 

combination of both schemes, or not protected at all. In the case where protection is 

provided by both the home- and host-country protection schemes, the home-country 

scheme may provide basic coverage that is supplemented by the host country. Foreign 

branches participating in a host-country deposit protection scheme should conform to the 

membership criteria of the host-country scheme, which may possibly include the 

application of supervisory requirements on a stand-alone basis. If the host-country 

scheme provides supplementary coverage, double reimbursement of insured depositors 

should be avoided. The protection already provided by the home-country scheme should 

be recognised in the determination of levies and premiums. 

In general, information received by safety-net participants in other jurisdictions should be 

subject to the same strict confidentiality rules applicable to information received by other 

domestic safety-net participants. Confidentiality rules should comply with international 

standards. If this is assured, all relevant information should be exchanged between 

deposit insurers in different jurisdictions, and possibly between deposit insurers and other 

foreign safety-net participants when appropriate. In any case, foreign deposit insurers 

should receive all information necessary to enable a prompt reimbursement of depositors.