REPORT FROM THE COMMISSION  TO THE EUROPEAN PARLIAMENT AND TO THE COUNCIL Review of Directive 94/19/EC on Deposit Guarantee Schemes
Date: 2010-07-12
Institutions: European Commission
Subjects: bank deposit, banking, credit guarantee, credit institution, financial institution, management audit

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EUROPEAN COMMISSION 

Brussels, 12.7.2010 
COM(2010)369 final 

REPORT FROM THE COMMISSION  
TO THE EUROPEAN PARLIAMENT AND TO THE COUNCIL 

Review of Directive 94/19/EC on Deposit Guarantee Schemes 

COM(2010) 368 

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REPORT FROM THE COMMISSION  
TO THE EUROPEAN PARLIAMENT AND TO THE COUNCIL 

Review of Directive 94/19/EC on Deposit Guarantee Schemes 

1. 

INTRODUCTION 

This report covers those issues raised by the review clauses of Articles 7(1a) and 12(1) of the 
Directive  which  are  not,  or  not  entirely,  dealt  with  by  the  proposal  to  amend  Directive 
94/19/EC: 

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Appropriateness of a fixed coverage level of €

 100 000 (Article 7(1)(a)); 

Appropriateness and arrangements for providing full coverage for certain temporarily 
increased account balances (Article 12(1)(b)); 

Benefits  and  costs  of  introducing  a  pan-European  Deposit  Guarantee  Scheme 
(Article 12(1)(d)); 

Harmonisation  of  the  scope  of  products  and  depositors  covered,  including  the 
specific  needs  of  small  and  medium-sized  enterprises  and  local  authorities  (Article 
12(1)(f)); 

The  link  between  deposit  guarantee  schemes  and  alternative  means  of  reimbursing 
depositors, such as emergency payout mechanisms (Article 12(1)(g)). 

This  Report  should  thus  be  read  in  connection  with  the  legislative  proposal  it  accompanies. 
Finally, the report also briefly discusses the link between Deposit Guarantee Schemes and the 
Commission’s work on bank resolution. 

2. 

LEVEL AND SCOPE OF COVERAGE 

This section deals with the appropriate level of coverage, temporarily high deposit balances 
and the special needs of authorities and small and medium-sized enterprises (SME). 

2.1. 

Appropriateness of the fixed coverage level of €

 100 000 

Directive 2009/14/EC requires Member States to ensure that by 31 December 2010 their level 
 100 000.  This  Directive  was  adopted  in  autumn  2008  when  the 
of  coverage  is  fixed  at  €
financial  crisis  aggravated.  Due  to  the  urgency  of  the  matter,  no  impact  assessment  was 
carried  out  at  the  time.  The Commission  has  retroactively  assessed  the  appropriateness  of  a 
fixed coverage level of €

 100 000. 

The ‘minimum harmonisation’ approach taken by Directive 94/19/EC resulted in significant 
differences  between  the  coverage  levels  in  Member  States.  When  the  financial  crisis 
aggravated in autumn 2008, some EU depositors moved their deposits from banks in Member 
States with a lower coverage level to those with higher deposit protection. Such differences 
may  cause  serious  distortions.  Deposit  movements  based  solely  on  one  factor  (the  coverage 

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level) may be costly for depositors, as switching from one bank to another may, for example, 
affect  the  rate  of  interest  they  earn.  For  credit  institutions,  such  a  sudden  and  significant 
outflow  of  deposits  may  create  heavy  liquidity  strains.  This  may  in  turn  affect  the  ‘real 
economy’  (as  banks  may  limit  their  lending  activity  in  times  of  financial  instability)  and 
eventually  lead  to  government  intervention  and  the  use  of  public  funds.  Moreover,  if 
depositors choose their bank according to the deposit protection offered (which banks do not 
control),  rather  than  the  quality  and  cost  or  benefits  of  the  product,  they  are  not  taking  full 
advantage of  the Internal Market. To avoid  such distortions  in the future and ensure a level 
playing field across the Internal Market, the level of coverage should in principle be the same 
everywhere. 

The  coverage  levels  in  Member  States  still  vary  greatly,  from  the  minimum  of  €
 50 000  to 
 103 291 in Italy1 and even unlimited guarantees in some Member States. Currently, 16 of out 
27 Member States either already apply the coverage level of €
 100 000 or have legislation in 
place  to  introduce  it  this  year.  Therefore,  reverting  to  any  level  of  coverage  lower  than 
 100 000 would be confusing for depositors and, by unnecessarily aggravating the risk of runs 
on  banks,  could  undermine  confidence  again.  It  would  also  be  misinterpreted  as  the  EU 
lacking  a  clear  vision  and  consistent  overall  strategy  for  reforming  Deposit  Guarantee 
Schemes, which are a key element of the financial safety net. 

A fixed coverage level of €
 100 000 is the optimal solution in terms of effectiveness and cost-
efficiency.  It  would  substantially  improve  deposit  protection  without  disproportionately 
increasing  the  costs  for  banks  and  depositors.  In  comparison  with  the  coverage  levels 
applicable  in  Member  States  before  the  financial  crisis,  it  would  increase  the  amount  of 
covered deposits from 61% to 72% of eligible deposits; it would also increase the number of 
fully  covered  deposits  from  89%  to  95%  of  eligible  deposits.  The  benefits  of  adopting  a 
 100 000  would  be  very  limited  (for  example,  the  level  of 
coverage  level  higher  than  €
 200 000  would  increase  the  number  of  fully  covered  deposits  by  less  than  2%  only)  and 
higher coverage would thus not seem to justify the additional costs. 

Consequently, the current mechanism of increasing coverage to a fixed level of €
appropriate. 

 100 000 is 

2.2. 

Small and medium-sized enterprises (SME) and local authorities  

In order both to simplify and harmonise the system and to ensure faster payout by making it 
easier  to  verify  claims,  the  Commission  is  in  favour  of  including  or  excluding  entire 
categories of depositors such as enterprises and authorities in all Member States rather than 
differentiating within a given category (i.e. by size of enterprise or the nature of the authority) 
since such distinctions would be time-consuming and costly. 

SME are currently covered to the extent that they are permitted to draw up abridged balance 
sheets.  This  is  roughly  equivalent  to  the  EU  definition  of  small  enterprises.  Since  this 
subcategory of SME already amounts to 98.7% of all EU enterprises (99.8% if all SME were 
covered),  the  costs  of  identifying  around  1%  of  depositors  during  payout  and  potentially 
delaying the process of  reimbursing depositors are estimated to be higher than the expected 
benefits  of  saving  payouts  to  such  a  low  number  of  depositors.  Therefore,  the  Commission 
proposes to cover all enterprises regardless of size. 

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In Norway, the (converted) coverage level amounts to more than €

 240 000. 

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€
€
€
                                                 
Since  deposits  by  local  authorities  are  currently  excluded  in  20  Member  States,  their 
exclusion  would  thus  only  be  relevant  in  seven  Member  States  and  have  a  more  limited 
impact than their inclusion. The coverage level of €
 100 000 would be insignificant for most of 
them since around 83% of local authorities in the EU are estimated to have deposits of more 
 100 000.  However,  in  some  EU-12  Member 
than  €
States (e.g. the Czech Republic and Lithuania), the average deposits of municipalities are the 
lowest in the EU so the impact there might be higher. 

 50 000  and  about  72%  of  more  than  €

There are far fewer local authorities than depositors in the EU (about 121 000 local authorities 
while 450 million other depositors). The limited number of local authorities compared to all 
other  depositors  minimises  the  impact  on  financial  stability  in  the  event  of  a  bank  failure. 
Even if municipalities are technically insolvent, there are means under national law to ensure 
that they can continue to carry out their basic duties to the public and, if needed, they have 
much easier access to credit than ordinary citizens. 

While  all  enterprises  should  be  covered  by  Deposit  Guarantee  Schemes,  local  authorities 
should be excluded. 

3. 

A PAN-EU DEPOSIT GUARANTEE SCHEME  

In  order  to  improve  cross-border  cooperation  among  Deposit  Guarantee  Schemes  and 
overcome the current fragmentation of the system (there are almost 40 schemes in the EU), 
the  Commission  services  analysed  the  benefits  and  costs  of  introducing  a  pan-EU  Deposit 
Guarantee Scheme. The following structural options were taken into account: 

•  a single entity acting as a pan-EU scheme, replacing the existing schemes; 

•  an additional scheme at EU level (a so-called ‘28th regime’) supplementing and supporting 

the existing schemes in 27 Member States; 

•  a network of existing schemes (‘an EU system of Deposit Guarantee Schemes’), including 
a mutual borrowing facility; this would mean that if the financial capacity of one DGS was 
depleted,  it  could  borrow  money  from  the  other  schemes  (a  similar  system  is  applied  in 
Austria). 

As  regards  membership,  the  following  options  were  taken  into  account:  (i)  all  banks  as 
members;  (ii)  only  cross-border  banks  as  members  (i.e.  banks  with  branches  in  another 
Member State); (iii) only large, systemically important banks as members. 

A  single  pan-EU  Deposit  Guarantee  Scheme  would  be  cost-efficient,  since  it  saves 
 40 million per year. It would thus be an economically effective 
administrative costs of about €
solution to overcome the fragmentation problem, but there are some legal issues to be further 
investigated. Therefore, the idea of a single pan-EU scheme should be seen as a longer-term 
project  and  be  subject  to  further  review  by  2014.  It  should  also  be  in  line  with  the 
developments  and  progress  as  regards  the  new  supervisory  architecture  in  the  EU  and 
developments in bank resolution (see next section). 

A  ‘28th  regime’  would  seem  rather  ineffective  since  it  would  add  complexity  without 
resolving the problem of inconsistencies stemming from the existence of almost 40 schemes 
in the EU. A network of existing schemes (‘an EU system of Deposit Guarantee Schemes’) 

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would  be  relatively  easy  to  set  up  since  it  would  not  require  changes  in  the  legal  set-up  of 
national  schemes.  Moreover,  depositor  confidence  would  be  strengthened  if  there  was  a 
mutual borrowing facility between schemes, making the risk of government intervention less 
likely. 

In this situation, a network of Deposit Guarantee Schemes with a mutual borrowing facility 
(see Annex) should be considered as the first step to establishing a single pan-EU scheme in 
the  future.  It  should  be  noted  that  the  introduction  of  a  pan-EU  scheme  presupposes  full 
harmonisation of Deposit Guarantee Schemes and could therefore only enter into force after 
the target level for their funds of 1.5% of eligible deposits has been reached. 

A pan-EU Deposit Guarantee Scheme of whatever structure should comprise all banks. Any 
other  option  would  be  potentially  distortive  and  would  seem  inconsistent  with  the  Internal 
Market. 

4. 

EMERGENCY PAYOUT 

The  Commission  proposes  to  reduce  the  payout  period  to  seven  days.  However,  emergency 
payout has not been identified as a preferable option. 

Fast payment of a certain amount in advance (e.g. €
 10 000 in three days) while retaining the 
current  payout  period  (i.e.  four  to  six  weeks)  for  amounts  above  €
 10 000  would  require 
Deposit  Guarantee  Schemes  to  pay  out  twice  and  the  costs  (stemming  from  human  and 
technical  resources)  would  likely  almost  double  as  well.  Fast  payout  without  proper 
verification  of  claims  (due  to  time  pressure)  could  result  in  a  higher  than  normal  rate  of 
erroneous payments. It would result in further costs for Deposit Guarantee Schemes because 
of  the  resources  required  to  recover  erroneously  paid  money.  It  could  be  very  difficult  in 
practice and time consuming, as it would likely force schemes to challenge claims before the 
courts. An ‘emergency payout’ could also be detrimental to depositor confidence, as it would 
send  a  very  negative  market  signal  to  depositors.  Depositors  who  only  receive  part  of  their 
deposits  on  short  notice  may  believe  that  the  Deposit  Guarantee  Scheme  does  not  have 
sufficient funds to pay the whole amount and may thereby cause a run on banks by trying to 
withdraw all their deposits.  

Therefore,  an  ‘emergency  payout’  would  be  cost-inefficient  and  could  undermine  depositor 
 10 000  after  three  days,  it  should 
confidence.  If  a  Deposit  Guarantee  Scheme  can  pay  out  €
also be able to pay out €
 100 000 within a short deadline if it is soundly financed. It is much 
more efficient to ensure the necessary conditions to achieve a much faster standard payout as 
set out in the Commission’s legislative proposal. 

5. 

DEPOSIT GUARANTEE AND BANK RESOLUTION (ALTERNATIVES TO PAYOUT) 

The alternative to triggering Deposit Guarantee Schemes and liquidating the bank would be 
bank resolution (i.e. organising an orderly failure) that entails continuity of banking services, 
so  that  depositors  have  continuous  access  to  their  funds.  In  particular,  deposits  may  be 
transferred to another bank. 

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However, the Directive on Deposit Guarantee Schemes should not be too prescriptive on such 
alternatives to payout since bank resolution is the subject of separate communications2 paving 
the way for a forthcoming legislative proposal. The proposal on Deposit Guarantee Schemes 
should  not  anticipate  the  ongoing  work  on  bank  resolution,  nor  on  the  other  hand  should 
progress on Deposit Guarantee Schemes be delayed by further developments in this field. A 
good solution would be to ensure that the Directive on Deposit Guarantee Schemes remains 
adaptable  to  changes  arising  from  further  work  on  bank  resolution.  Consequently,  the 
Commission proposes that the cost to Deposit Guarantee Schemes of transferring deposits as a 
resolution measure should not exceed the cost of reimbursing depositors. 

If  Deposit  Guarantee  Schemes  had  a  broader  mandate,  i.e.  including  early  intervention 
measures  (e.g.  recapitalization,  liquidity  assistance,  guarantees),  they  would  need  to  be 
adequately funded. Additional funds would need to be collected beyond the target level. This 
is because bank resolution is an alternative to payout while early intervention does not always 
prevent  a  payout  later  on.  For  this  reason,  Deposit  Guarantee  Schemes  should  only  to  a 
limited extent be allowed to use their financial means in order to avoid a bank failure without 
being restricted to financing the transfer of deposits. 

Annex:  An  outline  of  financing  elements  in  an  ‘EU  network  of  Deposit  Guarantee  Schemes’  subject  to 
mutual borrowing 

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2 

See COM(2009) 561 and COM(2010) 254. 

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Source: Commission services.  

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