CELEX: 51992PC0188
Language: en
Date: 1992-06-04
Title: Proposal for a COUNCIL DIRECTIVE on deposit-guarantee schemes

COMVTISSION OF THE EUROPEAN COMVIDNITIES
                                   C0M(92) 188 final - SYN 415
                                   Brussels,4  June 1992
                     Proposal for a
                   COUNCIL DIRECTIVE
             on deposit-guarantee schemes
             (presented by the Commission)
 ---pagebreak---                                           - 2 -
                                EXPLANATORY MEMORANDUM
A. General considerations
(1)    Main obiectives of the proposal
This   proposal    for   a  Directive    has   a   dual   objective:    to   protect  the
depositors of each credit        institution and to ensure the stability of the
banking system as a whole.
Deposit-guarantee      schemes, which     are    based   on   a  system   of   solidarity
between credit institutions, protect depositors in the event of a financial
crisis   in an    institution and      in particular       those  depositors    who  have
insufficient financial knowledge to discriminate between sound and unsound
credit institutions.
But, by the same token, guarantee schemes also protect the banking system
from the risk resulting from the withdrawal of their funds by depositors,
not   only   from   an   institution    in difficulty,       but  also   from   banks  in
relatively sound condition which may be the subject of unfounded rumours.
One   of  the   principles     underlying   the    establishment    of   such   guarantee
schemes    is therefore     that  the costs or possible distortions caused by
introducing    such schemes are outweighed by potential             economic costs to
society as a whole of a "run" on the banking system.
(2)    Need for deposit-guarantee schemes
At   the   end   of    1986,   the   Commission     was   already   convinced     of  the
desirability of credit        institutions of all Member States belonging to a
deposit-guarantee scheme and had published a Recommendation to this end,
87/63/EEC,1     since    it   considered    that    this    instrument,    although   not
binding, was sufficient to persuade those Member States which did not have
a guarantee scheme at the time to introduce one.
1   OJ No L 33, 4.2.1987.
 ---pagebreak---                                             - 3 -
Despite   this Recommendation, some Member States are not                 yet  convinced of
the need for all      their credit     institutions to be required           to belong    to a
deposit guarantee scheme, and two Member States have not yet                  introduced one
at all.
It   is  certain     that   the    strengthening      of    national    and    international
prudentiai     measures    is   designed     to   avoid    financial    crises     in  credit
inst i tut ions.
However, in the same way as prudentiai rules, a deposit-guarantee scheme is
an element    in the safety net with which the Commission and the supervisory
authorities are endeavouring to surround credit               institutions in preparation
for the extension of their activities which wiII start                in 1993.
This   guarantee    meets   the   need   of   foreseeing      that,  although     it  may   be
subject    to  very   strict   rules    and   severe   prudentiai      controls,    a  credit
institution can experience financial difficulties.
In this case, the cost of compensating depositors wi I I have to be weighed
against   that of reorganization measures which might be essential                   in order
to rescue the institution.
The provisions of this proposal          for a Directive therefore meet a need and
take account of      the experience acquired during            the  implementation of      the
abovementioned Recommendation 87/63/EEC and at the time of recent crises in
institutions     that   had   branches    in    several   Member States.       The   proposal
tries   to   satisfy   the wishes     expressed     on   this   subject    by  the   European
Parliament     in  its   opinion 1   on   the    proposal     for  a   Directive C0M(88)4 2
concerning the reorganization and the winding-up of credit                 institutions and
deposit-guarantee      schemes and     by   the Banking      Advisory   Committee,     in  its
                            3
opinion of 4 July 1991.
1    Opinion of the European Parliament at first reading of 13 March 1987,
     OJ No C 99, 13.4.1987, p. 211.
2    OJ No C 36, 8.2.1988, p. 3.
3    Report of the Chairman 1988-91, Annex C.
 ---pagebreak---                                             - 4 -
(3)    Principle of guarantee by the scheme of the credit             institution's home
       Member State
Protection     is   based  on    the   principle    that   branch   depositors    wiII   be
guaranteed by the scheme existing, for this category of institution, in the
Member State where the institution has its head office (home Member State).
On completion of       the  internal    market, all    the activities    exercised     by a
credit   institution in the Community through          its branches wiII be subject to
a single accounting system, balance sheet and profit and               loss account, and
a system of monitoring solvency.
According    to   the  opinion    of   the Banking    Advisory   Committee,    failure   to
respect   the home country principle,          in a field as closely      Iinked to bank
supervision as deposit guarantee           schemes, would have created        a dangerous
precedent for the realization of the Internal Market             in banking services.
This   wi I I   lead   to  the    coexistence    on   the   same  territory    of   several
deposit-guarantee schemes.          But  the experience of Member States         in which,
for many years, various types of credit             institutions have been exercising
their   activities,     while    being    covered   by  different    guarantee    schemes,
proves   that   this can work      very well, especially       if the minimum     level of
coverage set by the proposal ensures that small depositors are compensated
in all Member States.
(4)    Choice of minimum level of coverage
Recommendation     87/63/EEC    did not    suggest   a harmonized    level  of   coverage.
Yet  it seems essential      in the run-up to completion of the single market for
depositors    to    be  given   basic    protection,     regardless   of   whether    their
deposits are in an office of a home-country bank or              in an office of a bank
based in another Member State.
 ---pagebreak---                                          - 5 -
The minimum   level of coverage set for the Community should not be too high
in order   to avoid what    has occurred      in the United      States     in particular,
where the risks taken by      individual    depositors have been          lowered so much
that such depositors have become virtually           indifferent    to the soundness of
their credit    institutions.
In addition, managers of credit        institutions have been encouraged             to hold
risky  portfolios, without     market    discipline     requiring     them    to pay    their
guarantee scheme high premiums because of the increased risk of bankruptcy
which   such   investments   represented      for   the    inst i tut ion.     In  this    way
institutions benefited     from   taking   risks while      losses were       borne   by  the
guarantee scheme.
Conversely,   coverage   must   not   be   too   low   and   leave    too   many    deposits
outside the minimum threshold of protection.
The only unaggregated     data readily     available     to the Commission        relate   to
the average size of deposits held at Community savings banks.
The average for such deposits is about ECU 2 500, which reflects a weighted
average of ECU 30 000 for time deposits, ECU 2 600 for current accounts and
ECU 2 150 for savings accounts.
Unfortunately averages alone do not provide an answer                to the question of
what  proportion    of deposits    or  depositors would       have    balances     above   or
below any particular minimum      level of protection.
Without direct empirical evidence on the size and distribution of accounts,
it seemed reasonable to try to establish a minimum            level of coverage in the
Community, based roughly on the levels of coverage now chosen by guarantee
schemes   in Member States.     If   the  two Member States        with    extremely     high
levels of coverage     (Germany and    Italy) are excluded,         together     with   those
where there    is no protection    at all    (Greece and Portugal), the median of
existing   levels  is approx imately ECU 15 000, which          is why this figure has
been chosen.
 ---pagebreak---                                             - 6 -
When  the proposal      was   being   prepared,    the   question     arose     of   whether    it
might be preferable to set a percentage             limit for repayment which would be
more egalitarian      but   less protective of        small   depositors.        This    solution
was not   adopted    because    it would    have   led to very major         changes      in some
solidarity     schemes   which    take   responsibiIity       for   rescuing       the    failing
institution and therefore compensate its depositors in full.
The  compromise     solution    finally   adopted     makes    it possible       to    limit   the
guarantee to a percentage of the deposit but requires that this covers at
least 90% of deposits, up to a payment              of ECU 15 000.        Above     this    limit,
Member States or schemes remain free to provide for lower payment ratios or
even to refuse any guarantee whatsoever.
(5)    Setting very limited time limits for payment
Most  of   the   existing    guarantee    schemes     provide    for   a   prompt     payout    to
depositors, but      unt i I now,    this payout      has very    often     been    tied    to  the
progress   of    liquidation    procedures    and    to   the   diligence      of    liquidators
appointed by the courts.
This   has   often    led   to   delays    causing     depositors     very      understandable
distress.     It is also a source of numerous disputes which can make payout
operations even slower.
This  proposal     permits   a starting     point    for   the   time-limit      which     is not
I inked to    insolvency procedures: the         length of time for which the deposit
is unavailable has been taken into consideration and if it is more than ten
consecutive     days procedures     for paying out       the guarantee can be           started;
these must    be completed within a three-month             time   limit unless there are
special circumstances.
This   three-month     time-limit     results     from    the   practical       experience      of
managers of guarantee schemes.          In most of the cases where            it has not been
possible to observe such a time limit, a legal procedure was under way and
the  valuation     of   deposits    for   the   purposes     of   the    guarantee      was    not
distinguished from the valuations necessary for liquidation which relate to
all the assets and are bound to take more time.
 ---pagebreak---                                           - 7 -
(6)    Depositor   information
The  priority    goa I of   depositor    protection   suggests   that   the  depositor
should be fully informed of the extent of coverage of his funds.
Complete    information    is  also   important    in  reducing   systemic   risk:   in
particular, the greater the depositor's awareness of risk, the greater care
he wi I I take to discover whether       the  institution to which he entrusts his
deposits   is weIl-managed, and the less sensitive he wiII be to unjustified
rumours.
(7)   Questions not deaIt with       in the proposaI
Several points have not been the subject of harmonized provisions; the main
ones are:
(a)    the legal status of guarantee schemes
      As    already   stated    in  the   Recommendation, 1   it   was   necessary   to
       acknowledge    the coexistence     in the Community,    and  sometimes   in the
      same Member State, of deposit         protection schemes set     up by private
       institutions    and   schemes   administered    on a  statutory    basis;   most
      private schemes are set up under          the responsibiIity of     professional
      organizations, but they are just as effective as the schemes managed
      by or with the assistance of the public authorities.
       It was   therefore considered      advisable   not  to change   this state of
      affairs and not      to compel    Member States and    credit   institutions to
      adopt a specific statute for their deposit guarantee schemes.
    Fourth recital of Recommendation 87/63/EEC.
 ---pagebreak---                                            - 8 -
(b)    financing mechanism
       there   are   also wide    differences     in the    financing    of   schemes.   The
       main   difference    is whether    or  not   a guarantee      fund   exists.    If it
       does,   credit    institutions    pay   contr ibut ions    to   the   said   fund  at
       specific    intervals of      time;  these   contributions      are    based  on  the
       value of the deposits        insured or on other parameters; the funds are
       managed by the guarantee schemes themselves.
       In other cases, the guarantee scheme is funded by commitments to pay
       on the part of the member credit           institutions; no payments are made
       into the scheme except       in the event of a claim.        Lastly, some schemes
       are  mixed    (funds    plus  commitments    or   possibiIities      of  exceptional
       contributions in the event of a claim).
       After   receiving    the assurance     that   the  financing     arrangements were
       sufficiently sound to pay off all depositors covered, including those
       at branches     in another Member State, it was not considered             necessary
       to harmonize rules which are closely             linked with    the management of
       the schemes in question.
The  question     of   whether    the  public    sector    would   be    able   to   provide
assistance    for   guarantee    schemes   in emergency      situations of      exceptional
gravity   and   when   the   schemes'   resources     have   been  exhausted,      has  been
raised  in order to enable them to respect their commitments to depositors.
It did not seem appropriate,         in the proposal     for a Directive, to prohibit
such assistance, which        could prove necessary       in practice, although        it is
not desirable as a general rule and could not be allowed to contravene the
rules of the Treaty concerning state aid.
 ---pagebreak---                                              - 9 -
B. Commentarv on the Articles
Art icle 1
Article 1 gives a few definitions which are necessary for the Directive to
be understood properly.          In order not to make this I ist of definitions too
long, those already contained           in several Directives have not been repeated;
these   include  "credit      institutions" and      "branches" which       can be found   in
                          1
Directive 77/780/EEC,          and    "home   Member State"     or    "host   Member State",
which can be found in Directive 89/646/EEC. 2
Paragraph 1
The idea of deposi t as it appears in paragraph (1) has been envisaged from
the depositor's point         of   view.    The depositor    has a     "credit   balance" or
"claim"    whereas    in    the    Directives     relating   to    annuaI    accounts,   this
naturally    appears    in   the    credit    institution's   accounts      in  the  form  of
"debt" or "loan".      This terminology has, on the other hand, been adopted in
paragraph 2, which deals with non-repayable funds.
Guaranteed    deposits    are    those which      result  from   funds    left   in  accounts
either   permanently     or    temporarily,     or  from   claims    for  which   negotiable
certificates have been issued.
The idea of "credit balance" is relatively clear: in particular                    it is used
for current accounts but          it is supplemented by the         idea of "funds    left in
accounts", which     is intended to indicate savings books or accounts or any
other  instrument   in which funds generally remain for longer than in current
accounts.
1    OJ No L 322, 17.12.1977.
2    OJ No L 386, 30.12.1989.
 ---pagebreak---                                           - 10 -
On the other     hand,   in order   to understand       the   idea of   "claims for     which
negotiable certificates have been         issued" it has to be seen          in the context
                                                            1
of  Articles 19    and   20 of    Directive 86/635/EEC         on   annual    accounts,   the
first of which deals with "amounts owed to customers" while the second uses
this   formula   and   spells   it out    in detail:      "debts    for   which   negotiable
certificates    have been     issued,   in particular       deposit    receipts,    'bons  de
caisse'   and   liabilities    arising    out   of    own   acceptances     and   promissory
notes".
The above Directive distinguishes these debts from debt                   securities which
appear   in a separate      heading.    This   distinction       is not    retained    in the
definition,    but   debt  securities     may   be   excluded     from   the   guarantee   if
Member States do not wish to cover them (option 11 of the Annex).
The definition does not specify that deposits have to be nominative; here
too an option is possible and Member States may provide for bearer deposits
to be excluded from the guarantee (point 9 of the Annex).
It was necessary to define the idea of Joint account, because of the option
chosen of a limit per depositor, so as not to disadvantage holders of such
accounts (Article 5(2)).
Lastly, the idea of unavailable deposit has been defined; in order to speed
up the payout     of  the guaranteed     amount,     it was decided      not   to  I ink  this
payout   with   the    uncertainties     of   the   procedures      of   reorganizing     and
liquidating the credit      institution but to keep to an objective observation,
namely that for ten consecutive days a depositor has been deprived of the
funds which should have been repaid by the credit              institution.
This period of ten days should normally make               it possible,      in most   Member
States,   to obtain     a decision    by   a  judicial    or    administrative     authority
establishing that payments have ceased.            The period wiII be shorter         if such
a decision results in the closure of banks since, in that case, the payout
time limit (three months) wiII count from the day of the decision.
1    OJ No L 372, 31.12.1986, p. 8.
 ---pagebreak---                                             - 11 -
Paragraph (2)
Some  deposits    are   excluded    from   the guarantee.       First   of   all,   interbank
deposits: the main       just i f icat ion for    this   is that    banks are supposed       to
know the crisis bank's situation better              than other    persons    in a business
relat ionsh ip wi th i t.
With regard to subordinated         loans, the existence of the clause recalled             in
the  definition    contractuaIly      excludes    them   from   the   guarantee,     since  by
their nature they are not to be repaid unt i I the               liquidation     is completed
and repayment depends on its results.
Art icle 2
Paragraph (1)
Paragraph (1) of this Article contains two fundamental principles:
(a)    The principle     that   all   authorized     institutions must      take part     in a
       deposit-guarantee scheme.          The  introduction of at       least one deposit-
       guarantee scheme      in each Community Member State had already been the
       subject   of   recommendation 87/63/EEC, mentioned above; not only                 does
       the   proposal    for   a   Directive    repeat    this   requirement      (still   not
       satisfied    in two Member States), but          it makes    it compulsory     for all
       authorized    institutions to belong to the schemes set up in this way.
       This requirement      is the counterpart       of the freedom of establishment
       of branches and the freedom to provide services.
       Since   credit    institutions      enjoy   these    freedoms,    it   is   absolutely
       necessary    for depositors of branches          located   in other Member States
       and not supervised by         local authorities, and depositors who entrust
       deposits to banks not established            in the country where they reside,
       to  be   protected      against     any   risk    of   financial     crisis     in  the
       institution in question.
 ---pagebreak---                                              - 12 -
      This   wi I I be    an   innovation      in several     States     where    membership    is
      optional, even though most credit              institutions do        in fact   take part
      in a deposit-guarantee scheme.
(b)   The   principle     that    the   guarantee     scheme    of   the   home    Member State
      shall cover the deposits of branches.
      This    principle       is   the    logical     result     of    supervision       by   the
      Member State where         the head office        is  located.      Once   the   competent
      authority      of    the     home      country     is    responsible        for     issuing
      authorizations      making     it   possible     to open     branches     and   engage   in
      activity     with    the     freedom     to   provide      services      throughout     the
      Community,     and    supervision       of   such    activity,      in   particular     the
      monitoring      of   solvency,        take   place     at    the    head     office,    the
       implications for guarantee schemes have to be recognized.
      Since the credit        institution and      its branches are considered to be a
      single un i t, from both the            legal and the banking point of view, it
      seems natural      for    this   institution      to take part       in the    solidarity
      scheme for credit        institutions      in the country where          its head office
       is established.       The   Iinks between this institution and host country
      for  its branches wi I I be far           looser than they are now when branches
      are "author ized"       in the same way as         local    institutions and have to
      respect    the    requirements       of   the   Member State       in   which    they   are
       located:
Paragraph (2)
This principle of belonging to the home country scheme, vigorously stated
in paragraph (1), has to be tempered by the provision                  in paragraph ( 2 ) , the
purpose of which     is to enable branch depositors to enjoy the advantages of
the host country's guarantee scheme.
 ---pagebreak---                                             - 13 -
This   is not strictly speaking a derogation from the principle of belonging
to the home country scheme since the latter               is stiII required to guarantee
branch    depositors    up   to   the    amount      offered    to   depositors     with  the
institution's head office but          it   is, as    it were, an additional        guarantee
which must be available whenever branch managers consider                 it appropriate to
extend    it  to   their   customers       in   order    not   to   suffer   a   competitive
disadvantage.
Guarantee schemes which provide a high              level of protection wiII,        in order
to enable branches to belong, have to find solutions to problems which are
different    from  those   they   have    had   to settle     in order    to guarantee    the
 institutions that have their head office on their territory.
These schemes wi I I probably have to avaiI             themselves of the disclosure of
 information as mentioned      in Article 12(5) of Directive 77/780/EEC, amended
by Article 16 of Directive 89/646/EEC 1             in order   to obtain data which wi I I
be useful    to them on    the activity        and solvency of      the  inst i tut ion whose
branch wiII be applying for membership.
They will probably have to stipulate special conditions for contributing to
their guarantee scheme       in keeping with the risks taken, since part of the
risk will already be covered by the head office guarantee.
These technical    difficulties should not conceaI the essential               advantage of
this    provision     in    preventing        distortions      of    competition      between
institutions and differences        in protection       levels, which depositors of the
same country would find difficult to accept.
Paragraph (3)
Since some of     the deposit-guarantee schemes which exist               in the Community
are   schemes   set   up   under    private       law  contracts,     the   fact    that  all
institutions are required       to take part         in deposit guarantee      schemes will
lead   to a constraint     not  envisaged       so   far, but    which  should   not   create
undue problems.     On the other      hand keeping them         in the scheme     if they do
not  comply with    its contractual       requirements, for example with           regard  to
financial contributions or       information, is liable to prove very difficult.
1    OJ No L 386, 30.12.1989, p. 8.
 ---pagebreak---                                            - 14 -
The fact that a guarantee scheme will be allowed to exclude an                 institution
means that depositors will be deprived of the protection to which they are
entitled   under     the   Directive    or   that   the   public   authorities     will   be
compelled to withdraw authorization; such withdrawal will                therefore depend
on the decision of a private body, which             is unacceptable     in principle and
in some cases unduly severe if the breach of obligations is a minor one.
As a way out     of    this dilemma,     the proposal     for  a Directive    accepts    the
possibility    of    exclusion    when    all   measures    to  secure    the   defaulting
institution's     compliance     with   its   obligations    have   been   fruitless,    but
requires   the   guarantee     to  be   maintained    for   one  year   after   exclusion,
whatever the decision taken by the supervisory authority.
This measure will enable the credit            institution's supervisory       authorities
not  to  resort    to   the   extreme   sanction   of   withdrawing    authorization     too
automatically      and    to   find,   where    appropriate,     another    solution     for
safeguarding the rights of the excluded           institution's depositors.
Art icle 3
This Article establishes that branches of institutions that have their head
office outside the Community cannot be compulsorily required to observe the
rule of belonging to the home country scheme as are Community                institutions.
As a result, depositors of          these branches could       be entirely    deprived of
protection    if Member States       did   not  take   the  necessary    steps   to   secure
their membership of the local scheme where they are not covered by another
guarantee scheme, for example in their home country.
This  is why paragraphs (2) and (3) of this Article require the depositors
of  these   branches     to be   provided    with   information;    this   is  in   fact  an
application,    adapted     to this particular      case, of    the   rules on    providing
depositors    with     information    which    are   contained    in   Article 6    of   the
proposal   for a Directive and relates to          institutions that have their head
office in the Community.
 ---pagebreak---                                           - 15 -
Art icle 4
This essential      provision of the Directive specifies           the minimum        level of
protection for depositors which has to be guaranteed within the Community.
Paragraph (1)
Paragraph (1) specifies that the lower limit of coverage per depositor, for
his aggregate deposits,         is ECU 15 000, which      is a   little higher        than   the
maximum   coverage     provided    in Spain  (11.700    ECU), Belgium       and    Luxembourg
(11.900 ECU), Ireland         (13.200 ECU), and a     little   lower    than the      coverage
provided    in the Netherlands       (17.400 ECU) and      the   United   Kingdom       (21.400
ECU).
This minimum     guarantee wi I I cover     total   deposits of      less than ECU 15 000
and  the sum     paid   to a depositor    wi I I therefore     be   ECU 15 000 for         total
deposits    of    ECU 15 000,     ECU 12 000   for   total    deposits     of    ECU 12 000,
ECU 10 000 for total deposits of ECU 10 000, etc.
But, in order to take account of the anxieties, in particular of economists
and   financial    experts    who would   I ike part    of   the   risks    to  be    borne    by
depositors, in order to encourage them to take an interest                in the soundness
of the institution to which they entrust their deposits (even if the latter
are not considerable), paragraph (4) allows the minimum coverage to be set
in the form of a percentage and not         in the form of a fixed amount.
As  a   result,    the   ECU 15 000   minimum   wi I I not    be   paid    out    to   repay    a
ECU 15 000     deposit    but   a  larger  deposit    -  namely    ECU 16 650       -   if   the
percentage    guaranteed      is 90% of   total    deposits.     For   total    deposits      of
ECU 15 000, the same depositor wi I I receive only ECU 13 500, st i I I on the
assumption    that   the percentage guaranteed        is equal    to 9 0 % of     the    total;
this   is the minimum percentage which has to be observed within the                     limits
of minimum coverage.
 ---pagebreak---                                        - 16 -
It is important   to note that the     introduction of a percentage, within the
limits specified   in paragraph (4), will not have the effect of reducing the
minimum payout   due from the scheme which        is st i I I ECU 15 000; however, in
order to arrive at this amount, in a scheme where each depositor              is repaid
only a percentage of his deposits, it is clear that the amount to be taken
into account,   in order    to establish    the minimum     limit of   deposits   to be
covered  for each depositor, will      have to be higher       than ECU 15 000     (and,
depending on the payout ratio chosen, will have to range from ECU 15 000 to
ECU 16 650).
Paragraph (2) and Annex
Paragraph (2) provides that Member States may authorize the exclusion from
the  guarantee  of   certain    depositors   or   certain   deposits    Iisted   in  the
Annex.
These exclusions relate mainly to the deposits of financial              instItutions,
insurance  companies,    central   and  local   authorities, and other      depositors
which can hardly be considered as meriting protection because of their lack
of economic expertise or economic weakness.           However, the number of these
institutions and persons is fairly large and the appraisal of whether              it is
advisable to exclude them varies from one Member State to another.
This  is why  it has not been possible        to achieve     ful ler harmonizat ion on
this point because the arrangements covering          these different     institutions
and depositors very largely depend on the guarantee amount which the scheme
provides and on national practice.        In this way several schemes in certain
circumstances take bearer deposits into consideration because they are used
by the smallest    savers   (non-nominative savings books) whereas most            other
countries wish to exclude them.
The  list contained   in Annex    I is limitative and Member States may exclude
from  the guarantee    only   the  institutions and     persons mentioned      therein,
with any other exclusion contravening the Directive.
 ---pagebreak---                                          - 17 -
Paragraph (3)
Paragraph (3)     however   permits    the   retention   or   adoption    of  provisions
raising the guarantee ceiling on which there is no maximum             limit.
This provislorf"wiTl permit      the retention of cerTaTn schemes which provide
depositors with     ful I compensation;     these are    the   result  of   a solidarity
arrangement     designed    to    avoid    member    institutions     being    put    into
 liquidation and which therefore provides, in the event of closure, for the
fulI repayment of all deposits.
Disregarding    this extreme case of the 100% repayment of deposits, schemes
such as the Danish, French or        Italian ones, which under the guarantee pay
out   amounts   higher   than   the   minimum   contained     in  the   proposal    for  a
                                                                                  1
Directive wiII be able to maintain their present           level of repayment.
Art icle 5
This Article states the principle of a guarantee per depositor and not per
deposit with a view to avoiding abuse, as is the case in the United States,
and   makes   some   provision   for   special    cases  which    have   given   rise   to
difficulties in some countries and have been solved in a variety of ways.
Paragraph    (2)   lays  down   a   supplementary     rule   for   Joint   accounts    and
paragraph (3) provides for the case of special            accounts where the account
holder acts on behalf of the beneficial owners who are the real owners of
the funds deposited     in the account.
Classic cases are those of property managers who receive the tenants' rents
before   handing   them over   to the owners,       lawyers, who     pass  certain    sums
intended for their customers through their accounts and trustees who act on
behalf of their beneficial owners.
Guarantee   schemes wi I I be able      to   lay down   certain    formalities enabling
them to ascertain the identity and rights of depositors.
     Denmark: 31.500 ECU
     France: 57.500 ECU
     Italy: 511.000 ECU per deposit
 ---pagebreak---                                            - 18
In some countries these formalities precede the provision of the guarantee.
The proposal     for a Directive does not         take a position on      this question;
this depends on national          practice  in relation   to these accounts which       is
far from being standardized.
Art icle 6
This   Art icle   lays    down   the  rules   relating   to  the   necessity    to  inform
customers of credit       institutions.
Such   information must       be ful I and accurate because the schemes which          the
branches of the same Member State wi I I join may be far more numerous than
they are at present.          It is therefore    important, especially     if the branch
depositors    do   not   enjoy    supplementary   coverage   by   the  local  scheme,   as
provided   for   in Article 2(2), for these depositors to be well             informed of
the   advantages     and    disadvantages   of   the  guarantee    scheme   covering   the
institution to which they entrust their deposit.
Art icle 7
This   Art icle   represents     one  of  the main    results   to  be  achieved   by  the
proposal, namely       that of permitting      the promptest    possible payout    of  the
guarantee provided for by the scheme.
In order to achieve this, a three-month time limit (renewable only once) is
set for payouts.
This    period   wi I I    normaliy   count   from   a  decision    by   the   supervisory
authorities or a court which often act very rapidly once the solvency of a
credit   institution     is called into question.
 ---pagebreak---                                            - 19 -
However,    in order    to save depositors and especially small depositors from
having,    as   is   sometimes    the  case,    to   endure   a  delay     during    which   a
reorganization solution        is sought    and   implemented without      the    institution
returning to normal activity, or a lengthy procedure of                legal    liquidation,
the proposal provides for a ten-day period of unavailabiIity at the end of
which, if no decision has been taken as to the institution's activity, the
depositor    is entitled to payment of the guaranteed amount and the scheme is
required to comply with the three-month time limit.
Paragraphs (2) and (3)
Nevertheless,     there    is provision    for   the   time-limit   to be extended,       but
only    in  the    event   of   difficulties     encountered     in   the    settlement     of
particular    cases, e.g. difficulties         in proving    the amount     of   the deposit
(case of    joint   accounts or accounts where          the account    holder     is not   the
beneficial    owner), and difficulties        in   identifying the depositor, or even
 in  finding   him   (if  he  has   changed   his   address   or   is   I iving    in another
country).
The very short time limits are stipulated            in order to favour depositors and
should not operate against their          interests; the proposal       therefore sets no
time-limit within which they have to enforce their rights.
Paragraph (4) supplements the provisions relating to depositor                    information
contained    in Article 6 by       information    to be provided     at   the   time of   the
cla im.
Lastly, paragraph (5) states that the payment shall be effected                  in national
currency    or   in   ecu;   it  is   necessary     to  make   this   clear     because   the
guarantee    is not confined      to deposits     in Community    currencies or       in ecu,
but   also   covers    deposits    in  third-country      currencies,     in   keeping   with
Art icle 5(1).
 ---pagebreak---                                          - 20 -
Art icle 8
The   first   subparagraph of paragraph 1 calls upon Member States to comply
with the Directive on 1 January 1994.
The    second    subparagraph   provides    that,  where   Member States    adopt  the
necessary provisions of national        law, the latter are to contain a reference
to   this   Directive   or  are   to  be   accompanied   by  such   reference  on  the
occasion of their official       publication.
The   second    paragraph  deals   with   the  requirement   to   communicate   to the
Commission the main provisions of national         law adopted by Member States.
Art icle 9
This Article contains the usuaI formula that this Directive            is addressed to
ail the Member States.
 ---pagebreak---                                               - 21 -
                                        Proposal for a
                                      COUNCIL DIRECTIVE
                              on deposit-guarantee schemes
THE COUNCIL OF THE EUROPEAN COMMUNITIES,
Having regard      to the Treaty establishing           the European Economic        Community,
and in particuiar the first and third sentences of Article 57(2) thereof,
Having regard to the proposal from the Commission,
In cooperation with the European Parliament,
Having regard to the opinion of the Economic and Social Committee,
Whereas,   in accordance with         the objectives of        the Treaty,     the   harmonious
development     of    the   activities       of   credit     institutions     throughout     the
Community should be promoted through the elimination of any restrictions on
freedom   of    establishment       and     the   freedom     to    provide   services    while
increasing     the   stability     of    the   banking    system     and  the   protection    of
savers ;
Whereas,    at    the   same    time     as    restrictions      on   their   activities     are
eliminated,     consideration      should     be   given   to   the   situation    which  might
arise   if a    credit    institution      that   has   branches     in other    Member States
suffers   a   financial      crisis;     whereas     it   is   indispensable      to  ensure   a
harmonized   minimum      level  of deposit       protection wherever       in the    Community
deposits are      located; whereas such deposit            protection     is as essential     as
the prudentiai rules for the completion of the single banking market;
Whereas,   in the event of        the closure of an         insolvent    credit    institution,
the depositors of branches situated             in a Member State other than that where
the credit   institution has its head office must be protected by a guarantee
scheme, in the same way as all the institution's other depositors;
 ---pagebreak---                                               - 22 -
Whereas   the cost     to credit      institutions of         participating     in a    guarantee
scheme   bears   no   relation     to   the    cost    that   would    result   from   a massive
withdrawal    of    bank    deposits      not     only     from   a   credit    institution      in
difficulties     but    also    from   healthy        institutions      following    a    loss   of
depositor confidence in the solidity of the banking system;
Whereas only ten Member States have a guarantee scheme                      in accordance with
Commission    Recommendation        87/63/EEC       of    22 December 1986      concerning      the
 introduction of deposit-guarantee schemes                 in the Community 1 ; whereas        this
situation    may     prove     prejudicial        to    the    proper    functioning      of    the
Single Market;
Whereas the Second Council Directive 89/646/EEC 2 , as amended by Directive
92/30/EEC 3   provides     for   a system       for   authorizing     and   supervising     credit
 institutions which wiII enter         into force on 1 January 1993;
Whereas    branches       wiII     no      longer      require      authorization        in    host
Member States, because         they wi I I be granted          a single authorization valid
throughout    the   Community,      and    their     solvency    wi I I be    monitored     by   the
competent   authorities      of    the   home     Member State;      whereas    this    situation
justifies    all   branches,      set   up     in   the    Community,    of   the  same     credit
 institution in belonging to a single guarantee scheme;                    whereas this scheme
can only be the one which exists, for this category of                     institution,     in the
state where the head office          is situated,        in particular because of the Iink
which exists between supervision of a branch's solvency and                      its membership
of a deposit-guarantee scheme;
Whereas   harmonization       must    be    confined       to  the   elements    necessary      and
sufficient    to  ensure,     within     a   very    short    period,    a  payment    under    the
guarantee calculated on the basis of a harmonized minimum                     level;
1    OJ No L 33, 4.2.1987, p. 16.
2    OJ No L 386, 30.12.1989, p. 1.
3    OJ No L 110, 28.4.1992, p. 52.
 ---pagebreak---                                         - 23 -
Whereas, for economic reasons, it is undesirable to introduce throughout
the Community a very high level of protection which is liable to encourage
the reckless management of         institutions;   whereas,    in addition,    in the
event of a serious claim, contributions to the funding of the scheme could
become too burdensome for the member institutions;
Whereas, however, the harmonized guarantee          level must not be too low in
order not to     leave too great a number of deposits outside            the minimum
protection threshold; whereas in the absence of statistics on the amount
and distribution of deposits        in Community credit    institutions, it seemed
reasonable to take as a basis the median guarantee offered by the national
systems; whereas that amount is ECU 15 000;
Whereas in the six Member States which are above that median               level, the
guarantee schemes offer depositors a coverage of their deposits which is
higher; whereas it does not seem appropriate to require that these schemes,
certain   of    which    have   been   introduced    only   recently    pursuant   to
Recommendation 87/63/EEC, be amended on this point;
Whereas the retention       in the Community of schemes providing coverage of
deposits which is higher than the harmonized minimum may lead on the same
territory    to   disparities     in  compensation    which    are   prejudicial   to
depositors    and   unequaI     conditions    of  competition      between   national
institutions    and   the  branches of     institutions of    other   Member States;
whereas, in order      to counteract    these disadvantages, branches should be
authorized to Join the host country scheme so that they can offer their
depositors   the same guarantees as those offered           by   the scheme of    the
country where they are located;
Whereas, in order to speed up payments under the guarantee, the initiation
of  insolvency proceedings should not be awaited, unless the             latter take
place within ten days of the deposits becoming unavailable because a credit
institution finds it impossible to comply with the obligation of refunding
them in accordance with the legal and contractual provisions applicable to
them;
 ---pagebreak---                                              - 24 -
Whereas a number of Member States have deposit-protection schemes under the
responsibiIity of professional           organizations;       whereas other Member States
have schemes set up and administered on a statutory basis and whereas some
schemes, although set up on a contractual basis are partly administered on
a statutory     basis;     whereas    this variety       of  status    poses    a problem     only
with   regard   to   compulsory     membership     of    and  exclusion      from    the   scheme;
whereas   it   is therefore       necessary    to  take steps       to   limit    the powers of
schemes in this area;
Whereas one of      the objectives of         the   harmonized     minimum     protection      laid
down by   the Directive        is to ensure      depositor     protection up       to a certain
amount, while excluding from such protection only deposits of other credit
institutions and claims which are the subject of special conditions such as
subordinated     deposits;      whereas    it should, however, be possible               for  each
Member State     to   limit    such   protection      to   depositors     who    are    unable   to
evaluate   the   financial      policy of     the  institutions       to which     they    entrust
their deposits, by enabling certain categories of depositors or of deposit
to be excluded from the guarantee;
Whereas the principle of a harmonized minimum                  limit per depositor         and not
per deposit has been retained; whereas              it is therefore appropriate to take
into   consideration      the    deposits    made   by    depositors     who   either     are   not
mentioned as holders of the account or are not                   the sole holders; whereas
the limit must therefore be applied to each identifiable depositor; whereas
the   same    does    not    apply    to    collective       investments      in     transferable
securities     made     via    financial      institutions       and    subject       to   special
protection rules which do not exist for the abovementioned deposits;
Whereas in compliance with the Directives governing the admission of credit
institutions having their head office in third countries, and in particular
Article    9(1)    of    Council     Directive     77/780/EEC 1 ,      as    last     amended    by
Directive    89/646/EEC,      Member    States    are    to  decide    whether      and   on  what
conditions to admit the branches of such credit                  institutions to operate on
their territory;       whereas     such   branches      wiII     not   benefit from the free
1    OJ No L 322, 17.12.1977, p. 30.
 ---pagebreak---                                             - 25 -
provision    of  services     by  virtue of     Article   59, second     paragraph     of  the
Treaty, nor from freedom of establishment              in Member States other        than the
one   in which    they    are   established;     whereas    accordingly     a  Member    State
admitting such branches may decide to oblige or permit such branches access
to the guarantee system         in place on their territory; whereas, however, it
is   appropriate     that   such   branches     should   be   required    to    inform   their
depositors of whether or not they belong to any guarantee system and of the
extent and limits of any such guarantees;
Whereas depositor       information     is an essential     element   in their     protection
and   must   therefore    also   be   the   subject  of   a minimum     number    of  binding
prov isions;
Whereas deposit protection is an essential element               in the completion of the
 Internal    Market    and    an    indispensable      supplement     to    the    system   of
supervision of credit        institutions on account of the solidarity             it creates
between all     the   institutions     in a given financial       market   in the event of
one of then fa iIing,
HAS ADOPTED THIS DIRECTIVE:
                                          Art icle 1
1.   For   the purposes of       this Directive,      the   following    definitions     shall
     apply:
     Depos i t: credit     balances which      result   from   funds   left   in accounts or
     from temporary situations deriving from normal banking transactions and
     which the credit      institution must repay under the legal and contractual
     conditions     applicable,     and   claims   for   which   negotiable      certificates
     have been issued by a credit          institution.
 ---pagebreak---                                           - 26 -
   Joint account: an account opened            in the name of two or more persons or
   over which two or more persons have rights that may operate against the
   signature of one or more of those persons.
   Unavailable deposit: a deposit which a credit                  institution experiencing
   a financial    crisis    is unable to repay under            the    legal and contractual
   conditions applicable to such repayment.
   This suspension of payments need not necessarily be declared or decided
   by  a   judicial   or   administrative       authority;       it   is sufficient       for   it
   actually to iast for ten consecutive days.
   At   the   end   of   that    period,     the    deposit      sha I I    be   deemed    to    be
   unavailable.
2. The   following   sha I I be excluded        from    any   repayment      by   the   guarantee
   schemes:
        the obligations towards other credit              institutions;
        subordinated      loans    in    respect      of    which     there     exist    binding
        agreements whereby       such    loans    are    not   to    be  repaid    untiI    after
        settlement    of all    other    debts    in the event        of   the bankruptcy       or
        liquidation of the credit         institution.
                                        Art icle 2
1. Each   Member State     shaII    ensure     that    on    its    territory     one   or    more
   deposit-guarantee        schemes     are      introduced        in    which     all    credit
   institutions     authorized      in    that    Member State        under     Article     3   of
   Directive    77/780/EEC     must    take    part.     The    schemes     shaII     cover    the
   deposi tors    of   branches      set    up     by     such     inst i tut ions     in    other
   Member States.
 ---pagebreak---                                       - 27 -
A branch of a credit       institution authorized     in another Member State may
apply   to   Join     voluntarily     the   scheme   covering     the    category     of
institution    to which      it belongs    in the Member State       in which     it  is
established    in order     to suppiement    the guarantee which      its depositors
already  enjoy     by  virtue   of   their   obligatory   coverage    by   the   scheme
referred to in paragraph 1.
Member States     shaII   ensure   that objective     conditions    relating    to the
membership    of    these    branches    form   part   of   all   deposit-guarantee
schemes.
If one of the credit        institutions required by paragraph 1 to take part
in the scheme or one of the branches granted voluntary membership under
paragraph 2 does not comply with the obligations              incumbent on     it as a
member of the deposit-guarantee scheme, the supervisory authority which
issued the authorization shaII be notified.
After  taking    all   the measures necessary       to secure    compliance     by   the
credit  institution, or branch thereof, with            its obligations and after
noting  the decisions       taken  by   the supervisory    authority     (for  example
reorganization      or  withdrawal     of   the  authorization),       the   guarantee
scheme may exclude the credit         institution or branch.       In that case, the
guarantee covering the institution's depositors shalI be maintained for
twelve months from the date of exclusion.
                                    Art icle 3
Subject   to Article      9(1) of    Directive   77/780/EEC,    Member     States    may
stipulate   that    the  branches    established    by  credit    institutions     with
their head office outside the Community must             join a deposit-guarantee
scheme in operation on their territory.
 ---pagebreak---                                          - 28 -
2. In any    event,   the managers      of  foreign    branches   shall    provide    their
   depositors with information enabling them:
        either to identify the guarantee scheme to which the branch belongs
        and   to be   aware   of   the   limits or    ceilings   which    exist   in that
        scheme;
        or to note the absence of any such guarantee.
3. The   information referred to in paragraph 2 shall            be made available in
   the official     language(s) of      the Member    State   in which     the branch    is
   established and shall be drafted         in a clear and comprehensible form.
                                       Article 4
1. The    deposit-guarantee      schemes    shall    stipulate    that    the   aggregate
   deposits of a given depos itor must be covered up to ECU 15 000                  in the
   event of a financial crisis in a credit            institution rendering deposits
   unavailable.
2. Member States may provide that certain depositors or deposits shall be
   excluded    from   the   guarantee    or  shall    be  granted    a   lower   level   of
   guarantee.     The exceptions are listed in the Annex.
3. This Article shall not preclude the retention or adoption of provisions
   which offer a higher guarantee ceiling.
4. Member States may      limit   the guarantee provided       for    in paragraph 1 or
   that    referred   to   in  paragraph 3     to   a  specified    percentage     of   the
   deposits.     However, the percentage guaranteed must equal or exceed 9 0 %
   of   the   aggregate   deposits     unt i I  the   amount   to   be   paid   under    the
   guarantee reaches ECU 15 000.
 ---pagebreak---                                           - 29 -
                                       Art icle 5
1. The limits referred to in Article 4(1), (3) and (4) shall apply to the
   aggregate deposits placed with the same credit               institution    irrespective
   of  the number    of   deposits, the currency         and   the   location within       the
   Commun i t y.
2. The  share of    each   depositor     in a    joint  account     shall   be   taken    into
   account   in calculating the limits provided for in Article 4 ( 1 ) , (3) and
   (4).
   In the   absence    of   special    provisions,     the   account    shall    be   divided
   equally between the depositors.
3. Where an account holder       is not the beneficial owner of the sums held in
   the account,     it  is the beneficial        owner  who shall      be covered      by  the
   guarantee.     If there are several        beneficial     owners, the share of each
   owner  shall   be taken     into account      in calculating      the   limits provided
   for in Article 4(1), (3) and (4).
   This   provision      shall    not      apply    to   collective       investments       in
   transferable securities.
                                       Art icle 6
1. Member States shall ensure that the managers of the credit                   institution
   provide depositors with the information necessary for them to identify
   the deposit-guarantee scheme         in which the     institution and       its branches
   take  part    within   the   Community.      The   limits    or   ceilings     applicable
   under  the   deposit-guarantee       scheme    shall   be   indicated    in a    readily-
   comprehensible manner.
2. The  information provided       for   in paragraph 1 shall be available             in the
   official    language(s)     of   the    Member   State     in   which   the    branch    is
   established    and   the   guarantee      limits  or   ceilings     and   the    level   of
   payments shall be expressed        in ecus and in national         currency.
 ---pagebreak---                                             - 30 -
                                          Art icle 7
1. Payments under the guarantee provided for               in Articles 4 and 5 shall be
   effected within three months of the date on which the deposit                    becomes
   unavailable, or of a court or other authority finding that payment has
   ceased    if this has occurred prior to that date.
2. For justified reasons, relating solely to certain depositors or certain
   deposits,     the guarantee       scheme may     request   the supervisory     authority
   for   an   extension     of   the   time   limit.   Such   extension    may  not  exceed
   three months.
3. The time limits referred to in paragraphs 1 and 2 may not be invoked by
   the guarantee scheme in order to deny the benefit of the guarantee to a
   depositor who, due to absence or              for any other     justified   reason, has
   been unable       to assert     his claim    to a payment     under  the guarantee    in
   t ime.
4. The   documents       relating     to   the   conditions     and   formalities    to  be
   fulfilled      in   order    to  benefit    from   a  payment    under   the   guarantee
   referred to in paragraph 1 shall be drawn up in detail                  in the official
   language(s) of        the Member      State   in which    the  guaranteed    deposit  is
   located.
5. Payment under the guarantee shall be effected                in the national    currency
   of  the Member      State    in which    the guaranteed     deposit   is located or   in
   ecus     irrespective       of    the    currency    in   which    the    deposits   are
   denominated.
 ---pagebreak---                                      - 31 -
                                   Article 8
1.  Member States   shall   bring   into   force  the   laws,  regulations    and
    administrative provisions necessary      to comply with this Directive by
    1 January 1994.   They shall forthwith inform the Commission thereof.
    When  Member States   adopt   these  provisions,   these  shall   contain   a
    reference to this Directive or shall be accompanied by such reference
    at  the  time of  their  official   publication.   The  procedure  for  such
    reference shall be adopted by Member States.
2.  Member States shall communicate to the Commission the text of the main
    laws, regulations and administrative decisions which they adopt       in the
    field governed by this Directive.
                                   Art icle 9
This Directive is addressed to the Member States.
Done at Brussels,                                        For the Council
                                                          The President
 ---pagebreak---                                          - 32 -
                                          ANNEX
List of deposits referred to in Article 4(2)
1.  Deposits of financial      institutions within     the meaning of Article     1(6)
    of Directive 89/646/EEC.
2.  Deposits of insurance companies.
3.  Deposits of the government and central administrative authorities.
4.  Deposits of provincial, regional, local or municipal authorities.
5.  Deposits   of    undertakings    for   collective   investment   in  transferable
    securities.
6.  Deposits of pension or retirement funds.
7.  Deposits of directors, managers, members personally           liable, holders of
    at  least 5% of the capital       of the credit     institution, members of    the
    external    auditing    bodies    and    depositors   with  similar    status   in
    subs idiar ies.
8.  Deposits of close relatives and third parties acting on behaIf of the
    depositors referred to at point 7.
9.  Non-nom i na t i ve depos i t s.
10. Deposits for which the depositor has, on an individual basis, obtained
    from the credit     institution rates and financial concessions which have
    helped to aggravate the financial situation of that credit           institution.
11. Debt securities issued by the credit         institution.
 ---pagebreak---                                        - 33 -
             STATEMENT OF IMPACT ON COMPETITIVENESS AND EMPLOYMENT
Title of the proposal: Coordination of laws, regulations and administrative
provisions relating to deposit-guarantee schemes.
1.   What  is the main reason for introducing the measure?
The main reason is the need to ensure throughout the Community that, in the
event of a financial crisis in a credit        institution having   its head office
 in the Community,    all  depositors   receive   a payment  of  up   to  ECU 15 000
within three months.
This minimum protection     is also intended to prevent massive withdrawals of
funds   where   rumours  emerge   (whether   or  not  justified)   about   a  bank's
solvency.
2.   Features of the businesses concerned
The businesses required to join a guarantee scheme are credit          institutions,
 i.e. a category of Iicenced businesses subject to prudential supervision.
Apart   from  the exceptions given     in an exhaustive    list, deposit    coverage
extends to all deposits of less than ECU 15 000 made by depositors, whether
natural or legal persons.
3.   What direct oblioations does this measure impose on business?
The businesses concerned,      i.e. credit   institutions, must   join   their  head
office's guarantee scheme     in order   to cover  their depositors and those of
their branches situated     in the Community.    They also have a duty to inform
their depositors.
 ---pagebreak---                                       - 34 -
  The businesses benefiting from the deposit guarantee have no obligations
  imposed on them by the Directive itself.
  4.  What indirect obligations are     local authorities  likely to   impose on
       bus iness?
s The branches of credit institutions having their head office outside the
  Community might be obliged to join the guarantee scheme of their host
  country.
  5.  Are there any special measures in respect of SMEs?        If so. what are
       they?
  There is no provision in the directive that deals specifically with SMEs
  but, to the extent that the deposits of legal persons are covered in the
  same way as those of natural persons, they wiII benefit from this extension
  of the guarantee to legal persons (not provided for in some existing
  schemes).
  6.  What is the likely effect on:
       (a) the competitiveness of business?
       (b) employment?
  There should be no direct effect on competitiveness or employment. This
  measure comes into play when the solvency of the credit institution is
  seriously compromised and its recovery is, under normal circumstances, no
  longer possible.
  7.   Have both sides of industry been consulted7   What are their views?
  The various European federations of credit           institutions have been
• consulted, as has EUROFIET, the body representing the employees of credit
  inst i tut ions.
  AlI the associations concerned are in favour of introducing a minimum
  payment of ECU 15 000 by way of a guarantee. They have submitted comments
  on some of the detailed rules governing that guarantee.
 ---pagebreak---                                                                      ISSN 0254-1475
                                                              COM(92) 188final
                                                      DOCUMENTS
EN                                                                              10
                                 Catalogue number : CB-CO-92-270-EN-C
                                                             ISBN 92-77-45286-2
Office for Official Publications of the European Communities
L-2985 Luxembourg