Dictionary of Terms
DIF – The Deposit Insurance Fund is an institution providing compensation to the holders of deposits in banks, cooperative savings banks, and building societies that were unable to meet their commitments.
Insured Deposits
- Current account – A bank account kept at a bank in which the account holder (client) has his money deposited. He can use his funds at any time to carry out various cash or cashless transactions.
- Savings account – An account to which disposable funds can be deposited. The funds bear a higher interest rate than in a current account and the funds are also readily available.
- Term account – An account offering a higher interest rate in exchange for the funds being tied down for a longer period. It is a bank deposit for a specified period of time with the interest rate set in advance.
- Deposit account – Serves for depositing the client’s money for a specified period at a fixed interest rate agreed in advance.
- Saving Books – A savings product on the market, but one that is overshadowed by its competitors. There are Saving Books in the name of their holder, with or without a termination period. Only the Saving Book owner or persons authorised by him can make dispositions with the funds “on a Saving Book registered in the name of its holder”.
Uninsured Deposits
- Supplementary pension insurance – A specific type of insurance offered by pension funds on a commercial basis. Together with private life insurance, it provides the policy holder with better financial security in the future, when he retires.
- Life insurance – Insurance in the event of death, the reaching of a certain agreed age, or in the event of another insured event. It provides financial security in the future (old age) or in cases of unexpected life situations; the funds deposited are appreciated.
- Subordinated debt – May have the form of a loan received, credit, or deposit, and in the case of a bank or a securities trader, also the form of an issued subordinated bond.
- Bill of exchange – A negotiable security giving rise to a debtor’s obligation. The drawee imposes an obligation on the debtor to pay and on the bill-of-exchange holder the right to demand the payment of the bill-of-exchange amount at the appointed place and time.
- Securities – A legal relationship between the issuer (debtor) and the creditor (securities holder) captured in writing, e.g., a share or bond. This document must contain certain formal statutorily mandated particulars.
Natural person – An individual who can engage in legal acts in full, in particular in business.
Legal entity – A unit comprised of persons possessing certain rights and obligations. It can be a business company, cooperative, state company, bank, insurance company, etc.
Participants of the system of insurance of accounts receivable from deposits – Banks, building societies and cooperative savings banks which pay contributions to the Fund every year in the amount stipulated in Sec. 41c (6) and (7) of the Act on Banks.
Record date – The day on which the Czech National Bank delivers a written notice to the Deposit Insurance Fund about the inability of a bank to meet its commitments to entitled persons arising from statutory and contractual conditions.
Amount of deposit compensation – 100% of the amount of a deposit is compensated, up to the maximum compensation of EUR 100,000 for a single client in a single bank, building society, or cooperative savings banks. Compensation for deposits in foreign currencies is paid out in Czech crowns.
Conversion of the Euro exchange rate – The equivalent of the limit in Czech crowns is calculated on the basis of the FX market exchange rate announced by the CNB as at the record date.
Deposit compensation disbursement – Commenced within 20 business days of the date of the insolvency notice.
The depositor does not need to apply for the compensation disbursement. Information about the commencement of the disbursement and its method is published in the press, on the Fund’s website, on the website of the insolvent institution, and also through the bank making the disbursement. The disbursement of the compensation runs for 3 years from the date of its commencement. The compensation is paid out through banks (see disbursement points with an extensive branch network, both in cash and through cashless transfers).
Disbursement point – As of 2011, three of the largest domestic banks have newly been appointed as the disbursement points for injured clients – Česká spořitelna, Komerční banka, and GE Money Bank. The selected banks have nearly 1,300 branches throughout the country, which guarantees good access for all clients.
Bank – A business entity whose objective is to generate a profit. The subject of its business is financial capital.
Cooperative savings bank – Fulfils the same role as banks, but does have its specific differences. Only members may save their funds in them. One can become a member upon the signing of an application form and the payment of an initial deposit. Certain advantages are connected to membership, which are regulated in the cooperative savings bank’s articles of association.
Building society – An institution offering construction savings, construction savings loans, and bridging loans.
Inability to meet one’s commitments – An inability to meet one’s commitments to entitled persons, as arising from statutory and contractual conditions.
Bank based in the Czech Republic – The registered seat of a legal entity is the address recorded as its registered seat or place of business in the Commercial Registry.
Insurance of foreign banks with a branch in the Czech Republic – Deposits with these institutions are insured in the deposit insurance system in the country in which the parent bank is based. The minimum deposit insurance in EU countries, like in the Czech Republic, is 100% of the deposit, but to no more than EUR 100,000. Information about deposit insurance must be provided to depositors by the relevant branch of the foreign bank, or it can be obtained from the relevant deposit insurance system. For more information, read here.
Interest – Calculated as the multiple of the initial principal and the interest rate /100
Interest rate – Usually stated as a percentage and is the price of the borrowed or deposited money.
Interest insurance – Insurance of all of the deposits of natural persons and legal entities kept at insured institutions, including interest.
Disbursement application – The depositor does not need to apply for the disbursement of the compensation. Information concerning the commencement of the disbursement and its method is published in the press, on the Fund’s website, on the website of the insolvent institution, and also through the bank making the disbursement.
Claims protocol – If a client thinks that he has not been awarded compensation in the right amount, he can use the claims process. To that end, he will fill out a claims protocol and send it to the Deposit Insurance Fund, Růžová 15, 110 00 Prague 1.
Power of attorney – A legal document that can be established between natural persons and legal entities in any combination. It is governed by the Civil Code. A power of attorney can precisely specify the tasks to be performed by a legal representative. A sample power of attorney for the disbursement of deposit compensation can be privided here.
Money flows to the Fund from the deposits of depositors in banks – Banks and cooperative savings banks pay 0.04% of the volume of the insured deposits (including interest) per quarter, and building societies 0.02% of the volume of the insured deposits (including interest, but excluding advances on state support). Newly, the Act on Banks introduces a requirement that the Fund create a financial reserve in the amount of 1.5% of the volume of the deposits insured. Once that level is reached, the contribution of the insured institutions will be reduced to a minimum (provided that the Fund does not disburse any deposit compensation).
