Proposal for a Directive of the European Parliament and of the Council amending Directive 94/19/EC on Deposit Guarantee Schemes as regards the coverage level and the payout delay
Date: 2008-10-15
Institutions: European Commission
Subjects: bank deposit, banking, credit guarantee, credit institution, financial institution, management audit

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 15.10.2008 
COM(2008) 661 final 

2008/0199 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  

amending Directive 94/19/EC on Deposit Guarantee Schemes as regards the coverage 
level and the payout delay 

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EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

In times of volatile markets, one of the biggest concerns for depositors is the safety 
of bank deposits should their bank fail.  

Since 1994,  Community rules  have ensured that all Member States have in place a 
safety net for depositors if banks fail. A review of these existing rules published by 
the Commission in 20061 highlighted a number of areas where improvements could 
be made. However, this report concluded that at that stage many of the improvements 
could be achieved without amending the legislation.  

Events  in  2007  and  in  2008,  and  in  particular  the  current  turmoil  on  the  financial 
markets,  have  exposed  these  deficiencies  and  their  consequences  in  terms  of 
depositors' confidence to a new extent.  

Crucially,  there  is also increasing  awareness that many savers could be caught out, 
and  not  reimbursed  in  the  event  of  a  bank  failure  because  their  savings  exceed  the 
coverage  levels  in  their  country.  The  minimum  coverage  level  of  €20.000  has  not 
been adjusted since 1994 and is no longer adequate in a number of countries given 
the  distribution  of  savings.  There  is  evidence  suggesting  that  the  competitive 
distortions  created  by  different  national  measures  are  having  a  real  and  disturbing 
impact on deposit taking.  

Moreover, the current payout delay of three months does not meet depositors' needs 
and expectations. 

The Council of the European Union agreed on 7 October 2008, that it is a priority is 
to restore confidence and proper functioning of the financial sector. It committed 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.  Therefore,  the 
Directive should be revised in three key areas: 

•  Increase of the minimum coverage level 

•  Reduction of the payout delay to a maximum of 3 days 

•  Termination of co-insurance 

2. 

IMPACT ASSESSMENT AND PUBLIC CONSULTATION 

Due  to  the  urgency  of  the  matter,  neither  an  impact  assessment  nor  a  public 
consultation could be carried out for the current proposal. 

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However,  the  Commission  gained  important  insights  from  its  review  process  of 
Directive  94/19/EC. In  the context of the Commission communication of 2006, the 
Commission  notably  asked  the  Commission’s  Joint  Research  Centre  for  submitting 
reports  on  the  coverage  level  (2005),  the  possible  harmonisation  of  funding 
mechanisms  (2006/7)  and  the  efficiency of deposit  guarantee  schemes (2008). This 
work was supported by the European Forum of Deposit Insurers (EFDI), in particular 
concerning obstacles to a rapid payout to depositors. This work has been taken into 
account for the current proposal. 

The reports are available on the following web site: 
http://ec.europa.eu/internal_market/bank/guarantee/index_en.htm 

3. 

BUDGETARY IMPLICATION 

The proposal has no implication for the Community budget. 

4. 

LEGAL ELEMENTS OF THE PROPOSAL 

A Directive amending the current directive is the most appropriate instrument. The 
proposal  is  based  on  Article  47(2)  of  the  Treaty,  which  is  the  legal  basis  to  adopt 
Community measures aimed at achieving the Internal Market in financial services.  

In  accordance  with  the  principles  of  subsidiarity  and  proportionality  as  set  out  in 
Article 5 EC, the objectives of the proposed action, cannot be sufficiently achieved 
by  the  Member  States  and  can  therefore  be  better  achieved  by  the  Community.  Its 
provisions do not go beyond what it is necessary to achieve the objectives pursued. 

Only Community legislation can ensure that credit institutions operating in more than 
one Member State are subject to similar requirements concerning Deposit Guarantee 
Schemes, which ensures a level playing-field, avoids unwarranted compliance costs 
for  cross-border  activities  and  thereby  promotes  further  single  market  integration. 
Community action also ensures a high level of financial stability within the EU.  

5. 

DETAILED EXPLANATION OF THE PROPOSAL 

5.1. 

Reduction of payout delay 

The  current  payout  delay  of  three  months,  which  can  even  be  extended  to  nine 
months, is detrimental to the confidence of depositors and does not meet their needs. 
Many  depositors  can  be  expected  to  face  significant  financial  difficulties  already 
within  less  than  one  week.  Therefore,  the  payout  delay  should  be  reduced  to  three 
days, without a possibility extension. 

However, the deadline should commence only when either the competent authorities 
have determined that the credit institution appears to be unable to repay the deposit 
or  a  judicial  authority  has  ruled  that  the  claims  of  depositors  are  suspended.  The 
decision  of  the  competent  authorities  may  take  up  to  21  days  after  first  becoming 
satisfied that a credit institution has failed to repay deposits. In the interest of a rapid 
payout, this period of 21 days should be reduced to 3 days. 

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Currently,  only  inter-bank  deposits  and  deposits  linked  to  money-laundering 
activities are excluded from payout under Article 2.  

Under  Article  7(2)  in  conjunction  with  Annex  1,  Member  States  can  choose  to 
further  exercise  14  additional  exclusions  from  payout.  These  include,  inter  alia, 
deposits  from  the  financial  and  public  sectors,  close  relatives  of  the  bank's  auditor 
and deposits by companies which are of "such a size that they are not permitted to 
draw up abridged balance sheets pursuant to Article 11 of Directive 78/660/EEC". It 
seems obvious that most of the exclusions create significant obstacles in any attempt 
to make a rapid payout. It is thus imperative that such exclusions should no longer 
apply. For the purposes of rapid payout, a scheme should cover only retail deposits. 
However, Member States should have the option to include other depositors provided 
that this inclusion does not impede rapid payouts. 

5.2. 

Co-insurance 

The  current  Directive  allows  an  optional  co-insurance  of  up  to  10%,  i.e.  a  certain 
percentage  of  losses  that  is  borne  by  the  depositor.  This  has  proven  counter-
productive for the confidence of depositors and may have exacerbated the problems. 
The argument of moral hazard (depositors should be 'punished' if they deposit their 
funds  at  a  bank  offering  high  interest  rates  but  incurring  high  risks)  is  not  tenable 
since retail depositors cannot, in general, judge the financial soundness of their bank. 
Consequently, this option should be discontinued. 

5.3. 

Coverage level 

The  current  minimum  coverage  level  is  set  at  EUR  20 000  with  the  option  for 
Member  States  to  determine  a  higher  coverage.  However,  this  does  not  reflect  the 
current  average  deposits  of  approximately  EUR  30  000  per  EU  citizen.  In  order  to 
maintain depositors' confidence, the coverage level should be raised significantly.  

The  Council  of  the  European  Union  agreed  on  7  October  2008  that  all  Member 
States  would,  for  an  initial  period  of  at  least  one  year,  provide  deposit  guarantee 
protection for individuals for an amount of at least EUR 50 000, acknowledging that 
many  Member  States  determine  to  raise  their  minimum  to  at  least  EUR  100 000. 
Therefore, the minimum coverage level should be first raised to at least EUR 50 000 
and, after one year, to at least EUR 100 000. According to estimates, about 65% of 
eligible  deposits  are  covered  under  the  current  regime.  The  new  amounts  would 
cover an estimated 80% (with coverage of EUR 50 000) and 90% (with coverage of 
EUR 100 000) of deposits.  

Changes  of  the  coverage  level  should  be  subject  to  the  standard  comitology 
procedure. However, in emergency situations, prompt action, coordinated across the 
Community,  would  be  needed  to  increase  the  level  of  coverage  to  address  any 
sudden loss of depositor confidence. Therefore, an emergency comitology measure is 
critical. Such emergency measures should be restricted to 18 months. 

5.4. 

Cross-border cooperation 

A  deposit  guarantee  scheme  does  not  only  cover  depositors  in  the  Member  State 
where the bank is authorized (home country) but also covers depositors at the bank's 

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branch  in  another  Member  State  (host  country).  If  the  host  country's  deposit 
guarantee scheme offers a higher level of coverage than the home country's scheme, 
the branch may also join the host country's scheme to offer the same coverage as the 
banks that are authorized in the host country.  

Whether  or  not  the  bank  has  joined  the  host  country's  scheme,  it  is  essential  that 
'home  and  host'  schemes  cooperate  with  each  other  to  ensure  rapid  payout.  The 
proposal,  therefore,  explicitly  introduces  a  general  obligation  for  schemes  to 
cooperate with each other. 

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2008/0199 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  

amending Directive 94/19/EC on Deposit Guarantee Schemes as regards the coverage 
level and the payout delay 

(Text with EEA relevance) 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, and in particular Article 
47(2) thereof, 

Having regard to the proposal from the Commission2, 

Having regard to the opinion of the European Central Bank3, 

Acting in accordance with the procedure laid down in Article 251 of the Treaty4, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

The Council of the European Union agreed on 7 October 2008 that it is a priority to 
restore confidence and proper functioning of the financial sector. It undertook 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. 

Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on 
Deposit  guarantee  schemes5  provides  already  for  a  basic  coverage  of  depositors. 
However, the ongoing financial turmoil necessitates an improvement of the coverage. 

The current minimum coverage level provided for in Directive 94/19/EC is set at EUR 
20 000 with the option for Member States to determine a higher coverage. However, 
this has proved to be not adequate for a large number of deposits in the Community. In 
order  to  maintain  depositors'  confidence,  the  minimum  coverage  level  should  be 
raised.  

Under  Directive  94/19/EC,  Member  States  may  limit  the  coverage  by  a  certain 
percentage.  That  option  has  proven  counter-productive  for  the  confidence  of 
depositors and should be discontinued. 

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OJ C , , p. . 
OJ C , , p. . 
OJ C , , p. . 
OJ L 135, 31.5. 1994, p. 5. 

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(5) 

(6) 

The payout period of three months currently provided for, which can be extended to 9 
months, runs counter to the need to maintain depositors' confidence and does not meet 
their  needs.  Therefore,  the  payout  delay  should  be  reduced  to  a  period  of  three  days 
from  the  date  on  which  the  deposit-guarantee  scheme  concerned  has  received  the 
relevant  information.  Furthermore,  in  the  cases  where  payout  is  triggered  by  a 
determination  of  the  competent  authorities,  the  decision  period  of  21  days  currently 
provided for should be reduced to 3 days in order not to impede rapid payout. 

The possibility of discretionary exclusions of certain categories of depositors set out in 
Annex I to Directive 94/19/EC has led to a variety of categories of beneficiaries that 
have to be identified during the payout procedure. This has proven to be difficult for 
the  enforcement  of  arrangements  between  home  and  host  country  schemes  (topping 
up) and to delay payout and should therefore be discontinued. In addition most of the 
exclusions currently provided for concern public entities and financial institutions. An 
increased protection should, however, benefit depositors who as a matter of principle 
do not dispose of a lot of financial expertise. Therefore protection should be limited to 
retail  depositors,  whilst  maintaining  the  option  for  Member  States  to  extend  that 
protection to other categories of depositors. 

(7)  Member  States  should  ensure  that  deposit-guarantee  schemes  have  adequate  funds 

available to meet their needs. 

(8) 

(9) 

The  measures  necessary  for  the  implementation  of  Directive  94/19/EC  should  be 
adopted  in  accordance  with  Council  Decision  1999/468/EC  of  28  June  19996  laying 
down  the  procedures  for  the  exercise  of  implementing  powers  conferred  on  the 
Commission. 

In  particular,  power  should  be  conferred  on  the  Commission  to  adjust  the  coverage 
level. Since this measure is of general scope and is designed to amend a non-essential 
element of Directive 94/19/EC, it must be adopted in accordance with the regulatory 
procedure with scrutiny provided for in Article 5a of Decision 1999/468/EC. 

(10)  When, on the imperative grounds of urgency that occur if the confidence of depositors 
in  the  safety  of  the  financial  markets  is  at  issue,  the  normal  time-limits  for  the 
regulatory procedure with scrutiny cannot be complied with, the Commission should 
be  able  to  apply  the  urgency  procedure  provided  for  in  Article  5a(6)  of  Decision 
1999/468/EC for the adoption of a temporary increase of the coverage level. 

(11) 

In  light  of  the  current  financial  turmoil  and  in  order  to  maintain  the  confidence  of 
depositors whilst at the same time respecting the legitimate expectations of all parties 
concerned,  Member  States  should  transpose  the  provision  increasing  the  coverage 
level  to  EUR  50  000through  legislation  applying  retroactively  with  effect  as  of  the 
date of the adoption of the Commission's proposal. 

(12)  Since  the  objectives  of  the  proposed  action,  namely  the  harmonisation  of  coverage 
levels  and  payout  delays,  cannot  be  sufficiently  achieved  by  the  Member  States 
because it requires the harmonisation of a multitude of different rules existing in the 
legal  systems  of  the  various  Member  States  and  can  therefore  be  better  achieved  at 

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Community  level,  the  Community  may  adopt  measures,  in  accordance  with  the 
principle  of subsidiarity  as  set out  in Article 5 of the Treaty.  In accordance with the 
principle  of  proportionality,  as  set  out  in  that  Article,  this  Directive  does  not  go 
beyond what is necessary in order to achieve those objectives. 

(13)  Directive 94/19/EEC should therefore be amended accordingly, 

HAVE ADOPTED THIS DIRECTIVE: 

Directive 94/19/EC is amended as follows: 

Article 1 

(1) 

In point 3(i) of Article 1, the second subparagraph is replaced by the following: 

"The competent authorities shall make that determination as soon as possible and at 
the latest 3 days after first becoming satisfied that a credit institution has failed 
to repay deposits which are due and payable; or" 

(2) 

Article 4 is amended as follows: 

(a) 

paragraph 5 is replaced by the following: 

"5. 

In the cases referred to in paragraphs 1 to 4, Member States shall ensure that 
Deposit-guarantee Schemes cooperate with each other.”  

(b) 

 the following paragraph is added: 

“6.  The  Commission  shall  review  the  functioning  of  this  Article  and,  if 

appropriate, propose amendments thereto." 

(3) 

Article 7 is amended as follows: 

(a) 

Paragraphs 1, 2 and 3 are replaced by the following: 

"1.  Deposit-guarantee  schemes  shall  stipulate  that  the  aggregate  deposits  of  each 
depositor must be covered up to at least EUR 50 000 in the event of deposits' 
being unavailable. 

By 31 December 2009 at the latest coverage shall be increased to at least EUR 
100 000. 

2.  Member  States  may  provide  that  certain  deposits,  listed  in  Annex  I,  be 
excluded from the guarantee or be granted a lower level of guarantee provided 
that the payment to all depositors is carried out within the deadline set out to in 
Article 10(1).  

3. 

This  Directive  shall  cover  depositors  who  are  natural  persons  acting  for 
purposes other than their trade, business or profession. 

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Deposit-guarantee  schemes  may  also  cover  other  depositors  provided  that  the 
payment  to  all  depositors  is  carried  out  within  the  deadline  referred  to  in 
Article 10(1)." 

(b) 

Paragraph 4 is deleted. 

(c) 

Paragraph 5 is replaced by the following: 

"5.  The  amount  referred  to  in  paragraph  1  shall  be  reviewed  annually  by  the 

Commission. The first review shall take place by 31 December 2010.” 

(d) 

The following paragraphs are added: 

“6.  The  Commission  may  adjust  the  amount  referred  to  in  paragraph  1,  taking 
account in particular of developments in the banking sector and the economic 
and monetary situation in the Community.  

That measure, designed to amend non-essential elements of this Directive, shall 
be adopted in accordance with the regulatory procedure with scrutiny referred 
to in Article 7a(2). 

7. 

The  Commission  may,  for  a  period  not  exceeding  18  months,  decide  upon  a 
temporary increase of the amount referred to in paragraph 1. 

That measure, designed to amend non-essential elements of this Directive, shall 
be adopted in accordance with the regulatory procedure with scrutiny referred 
to in Article 7a(3)." 

(4) 

After Article 7, the following Article 7a is inserted: 

"Article 7a 

1. 

The  Commission  shall  be  assisted  by  the  European  Banking  Committee 
established by Commission Decision 2004/10/EC*. 

2.  Where reference is made to this paragraph, Article 5a(1) to (4), and Article 7 of 
Decision 1999/468/EC** shall apply, having regard to the provisions of Article 
8 thereof. 

3.  Where reference is made to this paragraph, Article 5a(1), (2), (4) and (6), and 
Article 7 of Decision 1999/468/EC shall apply, having regard to the provisions 
of Article 8 thereof. 

----------------------------- 

* OJ L 3, 7.1.2004, p. 36. 

**OJ L 184, 17.7.1999, p. 23." 

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(5) 

Article 10 is amended as follows: 

(a) 

Paragraph 1 is replaced by the following: 

"1.  Member  States  shall  ensure  that  accurate  data  on  depositors  and  deposits, 
which  are  necessary  for  the  verification  of  claims,  are  made  available  to  the 
deposit-guarantee  scheme  when 
the 
determination  referred  to  in  point  3(i)  of  Article  1or  the  judicial  authority 
makes the ruling referred to in point 3(ii) of that Article.  

the  competent  authorities  make 

Deposit-guarantee schemes shall be in a position to pay duly verified claims by 
depositors  in  respect  of  unavailable  deposits  within  three  days  of  the  date  on 
which the data referred to in the first subparagraph have been made available to 
them." 

(b) 

Paragraph 2 is deleted. 

(6) 

Article 12 is replaced by the following: 

"Article 12 

"1.  By  31  December  2009  at  the  latest,  the  Commission  shall  submit  to  the 
European  Parliament  and  to  the  Council  a  report  on  a  harmonisation  of  the 
funding  mechanisms  of  deposit-guarantee  schemes  and 
the  possible 
introduction  of  a  Community  deposit-guarantee  scheme,  together  with  any 
appropriate proposals. 

2.  Member  States  shall  inform  the  Commission  and  the  European  Banking 
Committee if they intend to change the scope or level of coverage for deposits 
and  on  any  difficulty  encountered  when  cooperating  with  other  Member 
States." 

(7) 

Annex I is amended as follows: 

(a) 

points 1 to 9 are deleted; 

(b) 

point 11 is deleted; 

(c) 

point 14 is deleted. 

Article 2 

Transposition 

1. 

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative 
provisions  necessary  to  comply  with  this  Directive  by  31  December  2008  at  the 
latest.  They  shall  forthwith  communicate  to  the  Commission  the  text  of  those 
provisions and a correlation table between those provisions and this Directive. 

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Member  States  shall  apply  the  first  subparagraph  of  Article  7(1)  as  of  15  October 
2008. 

However,  they  shall  bring  into  force  the  laws,  regulations  and  administrative 
provisions  necessary  to  comply  with  the  second  subparagraph  of  Article  7(1)  of 
Directive  94/19/EC,  as  amended  by  this  Directive,  by  31  December  2009  at  the 
latest. 

When  Member  States  adopt  those  provisions,  they  shall  contain  a  reference  to  this 
Directive  or  be  accompanied  by  such  a  reference  on  the  occasion  of  their  official 
publication. Member States shall determine how such reference is to be made. 

2. 

Member States shall communicate to the Commission the text of the main provisions 
of national law which they adopt in the field covered by this Directive. 

Article 3 

Entry into force 

This Directive shall enter into force on the third day following that of its publication in the 
Official Journal of the European Union. 

Article 4 

Addressees 

This Directive is addressed to the Member States. 

Done at Brussels,  

For the European Parliament 
The President 

For the Council 
The President 

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