EN    EN EN 
 
EN    EN  EUROPEAN COMMISSION 
Brussels, 12.7.2010 
SEC(2010) 835 final 
  
COMMISSION STAFF WORKING DOCUMENT 
SUMMARY OF THE IMPACT ASSESSMENT 
  
Accompanying document to the 
  
Proposal for a 
 
DIRECTIVE …/…/EU OF THE E UROPEAN PARLIAMENT AND OF THE 
COUNCIL 
 
on Deposit Guarantee Schemes [recast] 
 
 
and to the  
  
REPORT FROM THE COMMISSION  
TO THE EUROPEAN PARLIA MENT AND TO THE COUNCIL 
 
Review of Directive 94/19/EC on Deposit Guarantee Schemes 
  
COM(2010) 368 
COM(2010) 369 
SEC(2010) 834  
 
 
 
EN 2   EN COMMISSION STAFF WORKING DOCUMENT 
SUMMARY OF THE IMPACT ASSESSMENT  
 
 
Accompanying document to the 
  
Proposal for a 
 
DIRECTIVE …/…/EU OF THE E UROPEAN PARLIAMENT AND OF THE 
COUNCIL 
 
on Deposit Guarantee Schemes [recast] 
  
and to the  
  
REPORT FROM THE COMMISSION  
TO THE EUROPEAN PARLIA MENT AND TO THE COUNCIL 
 
Review of Directive 94/19/EC on Deposit Guarantee Schemes 
  
 
EN 3   EN 1. INTRODUCTION 
No bank, whether sound or ailing, holds enough liquid funds to redeem all or a significant 
share of its deposits on the spot. This is why banks are susceptible  to the risk of bank runs if 
depositors believe that their depos its are not safe and try to w ithdraw them all at the same 
time. Since 1994, Directive 94/19/EC on Deposit Gu arantee Schemes (DGS) has ensured that 
all EU Member States have in place a safety  net for depositors. If a bank is closed, DGS 
reimburse depositors up to a certain coverage level. The current DGS system is fragmented: 
there are about 40 DGS in the EU, which cover di fferent groups of depos itors and deposits up 
to different coverage levels, and impose different financial obligations on banks. Moreover, 
the schemes have proved to be underfin anced in times of financial stress. 
The shortcomings of this fragmented system  prompted the European Parliament and the 
Council to request a comprehensive review of th e DGS Directive. This review is part of a 
package on compensation schemes in the fina ncial sector consisting of DGS, insurance 
guarantee schemes, and investor compensation schemes. 
2. PROBLEM  DEFINITION 
2.1. Differences in the level and scope of coverage 
The ‘minimum harmonisation’ approach adopted in Directive 94/19/EC has resulted in very 
different coverage levels in the EU (ranging from €  50 000 in some Member States to 
€ 103  291 in Italy). On the one hand, in the recent financial crisis , uncoordinated increases in 
the coverage levels across the EU led to depositors quickly shifting money to banks in countries where deposit guarantees  were higher, draining liquid ity from banks in times of 
stress. On the other hand, in times of stability , in a fragmented market depositors may still 
choose the highest deposit protection rather th an the best product, potentially distorting 
competition in the Internal Market. 
Currently, Member States can exclude protection for many types of depositors . This is 
particularly important for 20 million small and me dium-sized enterprises (SME), representing 
99.8
 % of all enterprises in the EU, whose confidence is crucial for financial stability. There 
are also considerable differences in the scope of deposits  covered by DGS (e.g. with regard to 
deposits in non-EU currencies, st ructured products and debt certificates). Time-consuming 
verification of eligibilit y may also delay payout. 
2.2. Inadequate payout procedures and depositor information 
Currently, depositors must be paid out within three months after a bank failure. From the end 
of 2010, this time limit has to be reduced to four  to six weeks. Such a time limit might still 
lead to runs on banks since many depositors woul d not have sufficient funds to pay for their 
usual expenses (food, bills, etc.) for more than a few days. 
Any difficulty before and during the payout pr ocess (including the l ack of proper depositor 
information) undermines depositor confidence. De positors may also hesitate to deposit money 
in other Member States if they do not know how other DGS work or deal with payout. 
 
EN 4   EN Another problematic issue is the option of se tting off deposits against the depositor’s due 
liabilities (e.g. mortga ge instalments) at the same bank or making counterclaims against the 
depositor (e.g. for the entire mortgage loan), wh ich is currently allowed in 22 Member States. 
This may reduce or, in extreme cases, eliminat e any payout from a DGS. Depositors may thus 
cause a run on their banks to get their deposits  in full. Moreover, determining liabilities and 
matching them with deposits is time-c onsuming and likely to delay payout. 
2.3. Inappropriate financing of DGS 
Currently, in 21 Member States, bank contributi ons are paid in advance on a regular basis (ex 
ante), but in six Member States, banks only c ontribute after a failure (ex post). The maximum 
resources available to DGS range between € 27 million and € 8.1 billio n while the amount of 
covered deposits in the EU is about € 5.7 tr illion. As a result, some  DGS are underfinanced 
and would not be able to deal even with a medium-sized bank failure. If DGS have 
insufficient funds, depositors might be paid out af ter a long delay or not be paid out at all. 
Mere ex-post funding is very pr o-cyclical since it drains liq uidity from banks in times of 
stress which might have negative consequences  for the economy (limiting the supply of credit 
by banks). Moreover, banks that do not pay ex-ante contributions are able to generate returns on those funds, and this constitutes a competiti ve advantage vis-à-vis their competitors in 
Member States with ex-ante funded DGS. 
In addition, risks incu rred by banks are not take n into account when calc ulating contributions. 
This may be perceived by risk-averse banks  as a competitive disadvantage and as a 
disincentive to sound risk management. This may also make the financial system more 
vulnerable and induce adverse selection. 
2.4. Limited cross-border cooperation between DGS 
The fragmentation across the EU leads to uneven distri bution of risk, in such a way that DGS 
with fewer resources would be hit harder by a bank failure than a DGS with more resources; 
this is aggravated by the lack of solidarity between schemes. Taxpayers would thus have to 
step in if a DGS had insufficient financial resources. 
Banking supervisors usually deci de whether a bank should be sa ved or the DGS be triggered. 
Thus, the fragmentation of DGS does not provide incentives for supervisors to reach a solution in the interest of all depositors of a banking group and to  take account of the potential 
impact on financial stability in all Member States involved. 
2.5. Limited mandate of DGS 
The powers to manage bank crises are split betw een various domestic au thorities (supervisors, 
central banks, governments, judicial authorit ies, and — in 11 Member States — DGS) and 
differ according to national systems. This make s cross-border bank resolution inefficient. The 
payout funds of DGS with a bank resolution manda te are not ring-fenced against being used 
for bank resolution purposes. This may impede  their primary function of providing quick 
payout of deposits in the event of a bank failure. 
Currently, mutual and voluntary DGS are exempt from the Directive. Depositors often have 
no claim against such schemes, which may ma ke them vulnerable if such schemes cannot 
cope with a failure and the failed bank is not a member of a DGS governed by the Directive. 
 
EN 5   EN 3. SUBSIDIARITY 
Only EU action can ensure that banks operating in  more than one Member State are subject to 
similar requirements concerning DGS, ensuring  a level playing fiel d, avoiding unwarranted 
compliance costs for cross-border activities an d thereby promoting fu rther Single Market 
integration. Harmonisation in many areas (e.g. coverage, payout, funding ) cannot be achieved 
by Member States alone because it requires the harmonisation of many different rules existing 
in the national legal systems and can therefore be tter be achieved at EU level. This has been 
acknowledged in the DGS Directives1. 
4. OBJECTIVES 
The overarching objectives enshrine d in the Directive are to main tain financial stability by 
preventing bank runs and to protect depositors’  wealth. In addition, th e principles of the 
Internal Market, such as ensuring a level playin g field between EU banks,  must be upheld and 
banks’ freedom to decide whether they want to operate directly in another Member State or establish branches or subsidiaries must remain unaffected. 
5. PREFERRED
 POLICY  OPTIONS  AND  THEIR  EXPECTED  IMPACT 
Given that minimum harmonisation has proved to  be ineffective as a way of protecting 
depositors’ wealth and inconsistent with the Treaty objective of  ensuring the proper 
functioning of the Internal Market, the appro ach of maximum harmonisation has been chosen, 
so as to create a level playing field for all Member States. 
5.1. Level and scope of coverage 
Maintaining the current approach, i. e. the fixed coverage level of €  100  000 to be applied in all 
Member States from the end of 2010, as compar ed with lowering or in creasing the coverage 
level, would ensure substantial progress in terms of increased de posit protection without 
disproportionably increasing costs for banks and depositors. In co mparison with the pre-crisis 
period, it would increase the amount  of covered deposits from 61% to 72% of eligible 
deposits and the number  of fully covered deposits from 89 % to 95% of eligible deposits. It 
seems that the level of €  100  000 is the optimal solution; the cost-efficiency benefits of 
adopting a coverage level higher than €  100  000 are very limited.  
However, taking into account an appropriate coverage for certai n life events and the current 
house prices, it might be justifie d to consider a higher coverage  level for so-c alled temporary 
high deposit balances stemming from  some specific life events and real estate transactions. At 
the same time, exemptions from the fixed co verage level might impe de a smooth and timely 
payout process. It might also affect the Internal  Market if depositors ch oose the bank with the 
best deposit protection but not th e most suitable product. This risks could be mitigated if the 
coverage of such deposits was limited to a certain time period. 
As to the eligibility of depositors, full harmonisa tion of the scope of coverage has turned out 
to be the most effective solution to create a le vel playing field. Excluding financial institutions 
would take into account the insignificance of the amount covered for them. Excluding 
                                                 
1 Recital 17 of Directive 2009/14/EC and recitals (not numbered) of Directive 94/19/EC. 
 
EN 6   EN authorities seems cost-efficient, since they have easy access to other financial resources. 
Covering the deposits of all ente rprises (i.e. including the rema ining 1.3% of enterprises in 
addition to the small and microenterprises now covered, which account for 98.7% of all EU 
enterprises) would save consid erable resources and the time n eeded for verifying the size of 
businesses during payout proceedings. It would thus considerably speed up payout and increase depositors’ confidence in DGS. 
Deposits in non-EU currencies should be covered by DGS — in contrast to  debt certificates 
and structured products not repayable in fu ll. This would avoid favouring banks as bond 
issuers over non-bank issuers. It would also re duce payout delay and th e administrative cost 
of verifying eligibility, while only modera tely increasing bank contributions to DGS. 
5.2. Payout deadline, modalities and depositor information 
In order to maintain depositors ’ confidence and avoid bank runs, the payout deadline needs to 
be substantially reduced — preferably to seven calendar days (after a transition period). Such 
a short payout deadline would only be feasible  under several conditions, i.e. imposing some 
obligations on supervisors (invol ving DGS at an early stage by compulsorily informing them 
if a bank failure becomes likely), DGS (maki ng payouts by DGS on thei r initiative without 
being prompted by applications from deposito rs) and banks (tagging eligible deposits, 
providing single customer views) . The latter would entail one- off administrative costs EU-
wide of about €
 1.2 billion annually within five years. They would be more than 
counterbalanced by a gain in depositors’ confid ence that would reduce th e probability of bank 
runs and contribute to financial stability. If eligibility criteria  were radically simplified, those 
costs could be considerably reduced.  
As regards payout modalities, discontinuing set-off would pe rsuade depositors with high 
liabilities not to cause a run on their banks. It would also be e ffective in reducing payout time. 
Only depositors that have been properly inform ed about key aspects of deposit protection (the 
level/scope of coverage, payout deadline, DGS contact details, etc.) can be confident in DGS. 
This would be ensured by means of a template to be countersigned by a depositor before 
depositing money in a bank and by a mandatory reference to DGS in account statements and 
advertisements, if a product is covered. The cost of such opera tions is deemed insignificant. 
Regular disclosure of information by DGS (e. g. ex-ante funds, ex-post capacity, results of 
regular stress testing) would ensure transpar ency and credibility at insignificant cost. 
5.3. Funding mechanisms and levels 
Ex-ante funding is much more efficient because of its counter-cyclical na ture (it imposes most 
costs on banks in good times) and it should be dominant (e.g. ¾ of the total fund) and supported by ex-post funds to be collected if  necessary (e.g. ¼ of the fund). Borrowing by 
DGS should be allowed but not necessarily harmonised.  
Setting a target level for DGS funds would ensure  that schemes are credible and capable of 
dealing with medium-sized bank failures. The mo st cost-efficient target level for total DGS 
funds would be 2% of eligible deposits — to be  achieved within 10 years. After this period of 
time, DGS in the EU would be much better fina nced than they are now . They would collect 
about €
 150 billion in ex-ante contributions and could call for €  50 billion of ex-post 
contributions if needed (compared to total ex-ante and ex-post funds of €  23 billion in 2008). 
 
EN 7   EN It would require bank cont ributions to DGS some four or five  times higher than at present and 
would reduce banks’ profits by a bout 2.5% in normal times. For depositors, it would mean a 
maximum reduction in interest rates on saving s of less than 0.1% or increasing current 
account fees of less than €  7 per year per account. This scenar io would be more cost-efficient 
than the other scenarios analysed, since a much  higher target level (e nough to cover a failure 
of one of the 10 largest banks in a Member State) would likel y lead to a 30% decrease in 
banks’ profitability (or even more than 40% in a crisis situation). It would also be a more 
effective option since a lower ta rget level (based on an aver age DGS payout) would not allow 
schemes to cover medium-sized bank failures. 
Moreover, a more harmonised approach to ba nk contributions, consisting of risk-based 
elements, would help better reflect the risk prof iles of individual banks and provide incentives 
to operate under a less risky bus iness model. Developing a set of core indicators mandatory 
for all Member States and another set of op tional supplementary indicators would introduce 
such harmonisation gradually, av oiding sudden adaptation costs. 
5.4. The mandate of DGS 
An effective and cost-efficient solution to ensu re that DGS funds cannot be drained for bank 
resolution measures to the benefit of uninsured creditors is to require that DGS funds should 
principally be used for paying out depositors. Howe ver, in order not to deprive depositors of 
the benefits of bank resolution measures (e.g. th e transfer of deposits to a healthy bank), it 
would be effective to allow the use of DGS fu nds for resolution only up to the amount that 
would have been necessary to pay out covered deposits. To a limited extent, Member States 
could also allow DGS to use their financial m eans in order to avoid a bank failure without 
being restricted to financing th e transfer of deposits. If DGS had an even broader mandate, i.e. 
including not only bank resolution but also earl y intervention measures (e.g. recapitalization, 
liquidity assistance, guarantees,  etc.), they would need to be adequately funded. This is 
because bank resolution is alternative to payout while early intervention does not always prevent payout later on. However, in order to  avoid situations where DGS funds could serve 
as an important contribution to an otherwise difficult early intervention measure, they could 
be used for such purposes under some restrictions. 
A more effective solution would be to ring-fence DGS against any use for other purposes than 
payout and to require that all DGS would have to  be equipped with sufficient funds for this 
role. However, this solution w ould not be cost-efficient. It  would cost banks between €
 121 
billion and €  352 billion and it is unclear whether this would be compensated by benefits in 
terms of depositor confidence and financial stability. Moreover, this option would seem 
inconsistent with ongoing Commission work on bank resolution to prescribe a mandatory 
bank resolution mandate for all DGS. 
The integration of mutual and voluntary guarantee schemes under DGS would effectively 
ensure that bank depositors adhering to such sc hemes enjoy the same rights and have the same 
confidence as other depositors. It is estimated that the cost to banks would be outweighed by 
the benefits of boosti ng depositor confidence. 
5.5. Cross-border cooperation between DGS and a pan-EU DGS 
In order to facilitate payout in cross-border situations, ho st-country DGS should act as a 
single point of contact for depositors at bran ches in another Member State. They would 
provide depositors with information in th e host country’s language. The host-country DGS 
 
EN 8   EN should act as a post box and a paying agent fo r the home-country DGS. Administrative costs 
for the former would be marginal in compar ison with the gain in depositor confidence. 
Another option to improve cross-border c ooperation among DGS would be setting up a 
network (an ‘EU system of DGS’) and introducing a mutual borrowing facility. This would mean that if the financial cap acity of one DGS became deplete d, it could borrow money from 
the other schemes. In order to allow an additiona l facility of 0.5% of eligible deposits for the 
borrowing scheme (i.e. the equivalent of ex-pos t contributions referred  to under Section 5.3 
— one quarter of 2%), all DGS would only have to lend up to 0.08% of eligible deposits, i.e. 
about 1/25 of their funds at target leve l. This is effective and efficient. 
This could be considered the first step towa rds establishing a singl e pan-EU DGS in the 
future, which would save administrative cost s of roughly EUR 40 million per year. This idea 
seems to be economically the most effective so lution to the fragmentation of the DGS market, 
but there are some legal issues that have to be  further investigated. Th e idea of a pan-EU DGS 
is a longer-term project and s hould be in line with develo pments and progress on the new 
supervisory architecture in the EU and de velopments in the field of bank resolution. 
5.6. Overall impact on stakeholders 
The main benefit of the above policy options is that depositors’ confidence is expected to be 
significantly enhanced by a higher level of c overage, faster payout, sound DGS funding, etc. 
It will make depositors confident that their de posits are safe and they will get back up to 
€
 100  000, even if their bank fails. It would inev itably involve substantially higher bank 
contributions which, in turn, reduce bank operati ng profits, but this is a basic condition of 
having sufficiently funded DGS in place. The cu mulative impact on banks stemming from the 
preferred policy options on the le vel and scope of coverage, th e harmonised approach to DGS 
funding and faster payout would be the followi ng: an average 4% decrease in bank operating 
profits at EU level during the first five years,  and a 2.5% decrease in the remaining five years 
(or 7.5% and 6% respectively in a crisis situation when ex-post contributions are collected as 
well). Some banks may try to pass those costs on to depositors but even in the worst case 
(assuming all bank costs are passed on to depositors, which is rather unlikely in a competitive environment), the overall impact during the te n years should not exceed a 0.1% reduction in 
interest rates on saving accounts or an increa se of bank fees on current accounts by about €
 7 
per year per account (or €  10-12 in a crisis situation). Depositors will benefit from increased 
competition as a result of a level playing field and all stakeholders will benefit from the overall financial stability to which the proposed DGS reform is expected to contribute. 
6. MONITORING
 AND  EVALUATION 
The transposition of any new EU legislation on DGS will be monitored under the Treaty. 
Since bank failures are unpredictable, the func tioning of DGS cannot be regularly monitored 
on the basis of how real bank failures are hand led. However, regular stress tests of DGS 
would show whether they are, at  least in an exercise scenar io, capable of complying with 
legislative requirements. This could be done as part of a peer review conducted by the 
European Forum of Deposit In surers (EFDI) and the proposed  European Banking Authority 
(EBA)2. 
                                                 
2 See COM(2009) 501.