Opinion of the European Central Bank of 4 October 2011 on reform of the deposit guarantee scheme (CON/2011/76)
Date: 2011-10-04
Institutions: European Central Bank
Subjects: EU banking union, Netherlands, credit institution, financial stability, financial supervision, financing method, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 4 October 2011 

on reform of the deposit guarantee scheme 

(CON/2011/76) 

Introduction and legal basis 

On  1  August  2011,  the  Dutch  Ministry  of  Finance  published  a  draft  general  administrative  regulation 

(hereinafter ‘the draft regulation’) for public consultation, which intends to transform the Dutch deposit 

guarantee scheme into an ex-ante funded scheme with risk-based contributions. This public consultation 

was open for response until 11 September 2011. 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

Functioning  of  the  European  Union  and  the  third  and  sixth  indents  of  Article 2(1)  of  Council  Decision 

98/415/EC  of  29 June  1998  on  the  consultation  of  the  European  Central  Bank  by  national  authorities 
regarding  draft  legislative provisions1,  as  the  draft  regulation  relates  to  De  Nederlandsche  Bank  (DNB) 

and  to  rules  applicable  to  financial  institutions  insofar  as  they  materially  influence  the  stability  of 

financial institutions and markets.  

The ECB should be consulted on this draft regulation, particularly because ECB Opinion CON/2011/60 
on the Law  which the draft regulation will implement2 advised changes in the Dutch deposit guarantee 

scheme to ensure compliance with Treaty provisions on the prohibition on monetary financing. Since the 

ECB was informed that the Dutch Ministry of Finance does not intend consulting the ECB on this matter, 

the ECB has decided to submit this own-initiative opinion. 

In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central 

Bank, the Governing Council has adopted this opinion. 

1. 

Purpose of the draft legislation 

The  draft  regulation  amends  the  Decree  on  special  prudential  measures,  investor  compensation  and 

deposit  guarantees  pursuant  to  the  Law  on  financial  supervision  and  to  the  Decree  on  prudential  rules 
pursuant to this Law3. Such amendments concern the financing of the Dutch Deposit Guarantee Scheme 

(Dutch  DGS)  which  is  presently  operated  by  DNB.  If  a  credit  institution  is  no  longer  able  to  meet  its 

obligations vis-à-vis depositors, the Dutch DGS is activated and the costs are  apportioned among other 

participating credit institutions. The Dutch DGS is funded on an ex-post basis by contributions from the 

1  
2  
3  

OJ L 189, 3.7.1998, p. 42. 
All ECB opinions are available at www.ecb.europa.eu. 
Staatsblad 2006, 507 and 519. 

 
 
 
 
                                                 
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member  credit  institutions  and  DNB  advances  amounts  needed  for  its  operation.  The  main  aim  of  the 

draft regulation is to transform the financing of the Dutch DGS from ex-post to ex-ante. Hence, the draft 

regulation  establishes  the  Foundation  for  the  Deposit  Guarantee  Fund  (hereinafter  the  ‘Foundation’) 
which will be financed though contributions imposed on member credit institutions4 and will reimburse 
DNB  for  the  Dutch  DGS’  operating  costs5  and  for  advance  payouts  in  respect  of  guaranteed  deposits6. 

The draft regulation regulates such various contributions to be made by member credit institutions of the 
Dutch DGS, including one-off contributions7, basic regular contributions8 and ex-post contributions if the 
Dutch DGS has insufficient funds available9.  

2. 

General observation 

The  ECB  should  be  consulted  on  future  substantial  amendments  to  the  draft  regulation.  No  further 

consultation will be required if the amendments in essence aim to accommodate the concerns expressed 

by the ECB in this opinion. Moreover, given the current legislative initiative at Union level for the recast 

of  Directive  94/19/EC  of  the  European  Parliament  and  of  the  Council  of  30  May  1994  on  deposit-
guarantee  schemes  (hereinafter  ‘draft  recast  DGS  Directive’)10,  the  ECB  understands  that  the  relevant 
national legislation will, as necessary, be aligned with this future Directive11. 

3. 

Specific observations 

3.1  Prohibition on monetary financing and operation of the Dutch DGS 

3.1.1  The  ECB  supports  the  establishment  of  ex-ante  funded  deposit  guarantee  schemes,  given  their 

relevance  to  financial  stability,  insofar  as  an  exclusive  reliance  on  DGS  members’  ex-post 
contributions may be a source of procyclicality12, and credit institutions will participate in deposit 

protection costs. The ECB points out in this context that the recast DGS Directive will, inter alia, 

harmonise  a  target  level  of  ex-ante  financing,  fixed  at  a  certain  percentage  level  of  covered 

deposits. Against this background, the ECB welcomes the Dutch Ministry of Finance’s replacement 

of the current ex-post funding arrangements for the Dutch DGS with ex-ante funding arrangements. 

However,  at  the  same  time  it  is  important  for  the  national  provisions  on  funding  of  the  deposit 

guarantee  schemes  to  comply  with  the  monetary  financing  prohibition  under  Article  123  of  the 

4  
5  
6  
7  
8  
9  
10  
11  

12  

See Sections 23f-23m of the draft regulation. 
See Section 23o of the draft regulation. 
See Section 23n of the draft regulation. 
See Section 23f of the draft regulation. 
See Section 23g-h of the draft regulation. 
See Section 23r of the draft regulation. 
OJ L 135, 31.5.1994, p. 5. 
See  proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council  on  Deposit  Guarantee  Schemes  [recast]  – 
the  Council’s  website  at 
Council  Presidency  compromise  proposal  of  14 
http://register.consilium.europa.eu. 
See  Commission’s  staff  working  document  ‘Summary  of  the  impact  assessment.  Accompanying  document  to  the 
proposal  for  a  DIRECTIVE  …/…/EU  of  the  European  Parliament  and  of  the  Council  on  Deposit  Guarantee  Schemes 
[recast]’, p. 5, available on the Commission’s  website at www.ec.europa.eu. 

June  2011,  available  on 

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Treaty. This provision prohibits central banks from providing overdraft facilities or any other type 

of credit facility to the public sector, including any financing of the public sector’s obligations vis-
à-vis  third  parties13.  Hence,  ECB  Opinion  CON/2011/60  advised  the  Dutch  authorities14  that 

advance payments by DNB in the context of the operation of the Dutch DGS are incompatible with 

the  monetary  financing  prohibition  and  that  consequently  relevant  Dutch  legislation  needs  to  be 

amended.  

3.1.2  Section 22 of the draft regulation provides that DNB will make arrangements for the establishment 

of  the  Foundation  and  that  the  Foundation  will  reimburse  DNB  its  costs  in  connection  with  the 

operation of the Dutch DGS. Further, Section 23n of the draft regulation provides that if DNB has 

paid out amounts related to the operation of the DGS, the Foundation will reimburse DNB as soon 

as possible for the total of those amounts up to an amount equal to the funds present in the Dutch 

DGS. Finally, Section 23o of the draft regulation provides that the Foundation reimburses the costs 

DNB has borne in connection with the DGS. The ECB understands that these provisions imply that 

DNB  will  finance,  until  it  is  reimbursed  by  the  Foundation:  (a)  the  Dutch  DGS’  tasks,  such  as 

payouts of the guaranteed deposits, and (b) the costs of operating the Dutch DGS. Further, the ECB 

understands that the limit ‘up to an amount equal to the funds present in the deposit guarantee fund’ 

in  Section  23n  may  lead  to  a  situation  where  DNB  has  made  payments  in  the  context  of  the 

operation of the Dutch DGS which will need first to be reimbursed through ex-post contributions 

from the member credit institutions of the Dutch DGS and can only be reimbursed to DNB subject 

to  the  availability  of  such  contributions.  The  draft  legislation  does  not  provide  for  any  backstop 
financing if ex-post contributions from member credit institutions are unavailable or insufficient15. 

3.1.3  The  above  described  forms  of  advance  financing  of  the  deposit  guarantee  scheme  by  the  central 

bank  are  incompatible  with  the  monetary  financing  prohibition.  The  only  compatible  forms  of 

central bank financing of deposit guarantee schemes are: (a) intraday credit in line with the general 

rules  on  provision  of  such  credit  by  the  central  bank,  and  (b)  short-term  emergency  liquidity 

financing  under  strict  conditions  established  in  the  ECB’s  Convergence  Reports,  i.e.  if  such 

funding  is  short  term,  addresses  urgent  situations,  systemic  stability  aspects  are  at  stake  and 
decisions are at the NCB’s discretion16. These conditions need to be listed in national law17 in the 

cases where emergency liquidity financing of the DGS is foreseen by the national legal system. 

3.1.4  Consequently, the ECB proposes the following amendments:  

(a) 

clarifying in Section 22 that the Foundation is financed by the dedicated contributions from 

the member credit institutions of the Dutch DGS and by other listed funding sources, which 

will not include advance financing by DNB;  

13  

14  

15  
16  
17  

See  Article  1(b)(ii)  of  Council  Regulation  (EC)  No  3603/93  of  13  December  1993  specifying  definitions  for  the 
application of the prohibitions referred to in Articles 104 and 104(b)(1) of the Treaty (OJ L 332, 31.12.1993, p. 1). 
See paragraph 4.2 of ECB Opinion CON/2011/60; see also ECB Annual Report 2010, p. 120 and paragraphs 2.2 to 2.3 of 
ECB Opinion CON/2007/26.  
See also paragraphs 3.1.4(d) and 3.2.2 of this opinion. 
See ECB’s Convergence Report, May 2010, p. 25.  
See paragraphs 2.2 to 2.8 of ECB Opinion CON/2008/5.  

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(b)  

specifying in Section 23n that the Foundation transfers the necessary amounts to DNB before 

DNB makes payments related to the performance of the Dutch DGS’ tasks. Alternatively, it 

should  provide  expressly  that  any  advance  payments  by  DNB  are  only  intraday.  If  in 

addition  short-term  emergency  liquidity  financing  of  Dutch  DGS  operations  by  DNB  is 

foreseen, conditions for such financing referred to in paragraph 3.1.3 of this opinion should 

be expressly listed in the Dutch law;  

(c) 

specifying in Section 23o that sufficient funds will be made available to DNB for fulfilling 

its  mandatory  task  of  operating  the  Dutch  DGS,  in  order  to  protect  DNB’s  financial 

independence; 

(d) 

specifying  funding  sources  available  to  the  Foundation  if  ex-post  contributions  by  the 

member credit institutions are insufficient to cover the needs of the Dutch DGS.  

3.2  Financing of the Dutch DGS by its member credit institutions 

3.2.1  One-off contribution 

Section  23f  of  the  draft  regulation  provides  that  an  entity  which  becomes  a  credit  institution 

following  entry  into  force  of  the  Decree  will  pay  a  one-off  amount  to  the  Foundation.  The  ECB 
understands from the explanatory memorandum18 that existing credit institutions will pay the same 

contribution under Section III to provide the Foundation with starting capital, both contributions to 

be laid down by ministerial regulation. The ECB requests further clarification of the determination 

and size of these contributions, and reassurance that this does not conflict with the principle of a 

level playing field. The ECB points in this context to the draft recast DGS Directive which aims, 

inter alia, at harmonising the level of contributions paid to the national deposit guarantee schemes 
with a view to achieving a level playing field19. 

3.2.2. Ex-post contributions by member credit institutions and backstop financing 

Section 23r of the draft regulation provides for ex-post contributions by member credit institutions 

of the Dutch DGS if the Foundation does not have sufficient funds to reimburse DNB for incurred 
costs and advance payments in connection with the DGS. As stated in an earlier ECB opinion20, an 

ex-ante  funding  scheme  should  also  include  the  possibility  to  call  on  the  private  sector  for 

additional financial support, as pre-collected funds from the industry may be insufficient in a crisis 

situation.  This  principle  of  ex-post  financing  from  the  private  sector  should  promote  additional 

market  discipline  and  address  the  risk  of  moral  hazard.  At  the  same  time,  the  ECB  notes  that 

additional  temporary  financing  going  beyond  the  ex-post  contributions  by  the  member  credit 

institutions may be needed in a severe crisis requiring, e.g. activation of deposit guarantees for a 

major credit institution. The draft regulation does not provide for financing to bridge this financial 

18  
19  
20  

See explanatory memorandum, p. 38. 
See recital 6 of the draft recast DGS Directive. 
See ECB Opinion CON/2011/12. 

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gap.  As  already  indicated  in  paragraph  3.1.4(d)  above,  the  ECB  invites  the  Dutch  Ministry  of 

Finance to expressly regulate this issue.  

3.3.   DNB’s financial independence  

The  ECB  refers  to  the  principle  of  financial  independence  under  which  an  NCB  must  have 

sufficient  means  not  only  to  perform  its  ESCB-related  tasks,  but  also  its  national  tasks,  e.g. 
financing  its  administration  and  own  operations21.  Previous  ECB  opinions  pointed  out  that 

allocation  to  the  NCBs  of  specific  non-ESCB  related  tasks  (e.g.  tasks  in  the  area  of  financial 

supervision or consumer protection) needs to be accompanied by the allocation of adequate human 

and financial resources allowing for such tasks to be carried out in a manner which will not affect 
the NCBs’ operational capacity to carry out their ESCB-related tasks22. In particular, the ECB has 

advocated  a  prudent  approach  in  this  respect  when  reimbursement  arrangements  are  proposed  in 
the national legislation as a mode of financing the non-ESCB related tasks23. The ECB considers 

that  the  draft  regulation  raises  concerns  in  this  respect  to  the  extent  that,  as  developed  above, 

advance  financing  by  the  DNB  of  the  Dutch  DGS  operations  is  foreseen  by  the  draft  regulation 

other  than  as  intraday  or  short-term  emergency  liquidity  financing,  and  in  particular  in  the 

circumstances where DNB would not be fully reimbursed for such advance financing. 

This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 4 October 2011. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

21  
22  
23  

See the ECB’s Convergence Report, May 2010, p. 21. 
See for instance paragraph 3 of ECB Opinion CON/2007/8. 
See for instance paragraph 4.2(c) of ECB Opinion CON/2008/16. 

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