Comments of the Deposit Insurance Fund (DIF) in Response to the European Commission’s Proposal Concerning Deposit Insurance
Prague, 13 June – The European Commission is proposing a package of measures to enhance the protection of bank account holders, small investors, and insurance company clients. According to the Commission, the main goal is to prevent another crisis and to restore trust in financial services.
The currently discussed Commission proposals intend to introduce, for example, a continuously financed system of deposit insurance across all EU countries, to make uniform the conditions for the disbursement of compensation for bank deposits and their maximum level at EUR 100,000. Furthermore, for example, an increasing of the limits of the compensation of clients of investment companies who lost their investments due to neglect of the obligations of a company administering their investments or due to fraud is being discussed. This limit should be increased from the present EUR 20,000 to EUR 50,000 and the disbursement period should be shortened to a maximum of 9 months. But the most important change, with which the national deposit insurance systems will have to cope if it is approved, is the shortening of the period for the disbursement of compensation for the deposits of the clients of bankrupt banks to 7 days!
In the Czech Republic, the protection of deposits and investments of the clients of banks, building societies and cooperative savings banks is provided by the Deposit Insurance Fund (DIF). The Fund not only monitors the steps of the Commission, but its representatives directly participate in the dealings concerning the planned changes.
"There is an on-going discussion across the European Union about the Commission's proposals. On Friday, I attended an EFDI meeting (European Forum of Deposit Insurers) in Luxembourg, and on Tuesday, together with a representative of the Czech Banking Association, a meeting of the European Banking Federation in Brussels, which also has the proposed Commission Directive on its agenda. In Luxembourg, we discussed the individual problem points, in order to find a platform for a shared position of the EU member states associated in the EFDI," says Renáta Kadlecová, Executive Director of the Deposit Insurance Fund, in commenting on current events.
Czech Legislation has already incorporated some of the Commission's proposals
Some of the measures proposed by the Commission have already been approved by the amended Act on Banks, which took effect on 5 June of this year, for example an increase of insurance coverage to EUR 100,000; the shortening of the deadline for the commencement of deposit compensation disbursement to 20 business days, as of 31 Dec. 2010; and the setting of a maximum level of fund reserves to 1.5 % of the volume of the deposits insured. And also the possibility for the Fund intermediating the disbursement of compensation for a branch of a foreign bank that is active in the Czech Republic.
The domestic deposit insurance system is currently working hard to prepare for the shortening of the deposit disbursement period to 20 days. This regulation was contained in the first "Commission anti-crisis package" and necessitated a comprehensive change in the information system, and not only in the Czech Republic.
Seven-day period for commencing the disbursement of the insured deposit compensation
"Presently, the Fund is preparing new software that will be used for receiving data from individual banks and passing it on to the disbursing bank in the event of the bankruptcy of one of the insured institutions. Based on the initial tests, we can say that, as for the technical aspects, the 7-day period can be met. The most difficult task of that stage is the generation of a database by the banks. The processing in the Fund and the hand-over to the disbursing bank should not exceed 4 days. We see a greater risk in terms of securing the funds, or, more precisely, obtaining liquid resources by the sale of the Fund's portfolio, as the liquidity of the domestic financial market is relatively limited," says Renáta Kadlecová, Executive Director of the Deposit Insurance Fund.
Benefit of the Commission's changes
"It is too early for a comprehensive evaluation of the proposed changes. Personally, I see benefits on several levels. (1) The Fund's role will be strengthened. Especially as concerns the duty of the banks to provide it with the information required for ensuring deposit compensation disbursement and the testing of the functioning of the compensation disbursement system. (2) The insured institutions will have the same conditions throughout the EU, in terms of the payment of contributions to the deposit insurance system, as the contribution payment method should be made uniform and at the same time, the financial reserve threshold of the individual deposit insurance systems should be set. (3) Clients will be able to choose among financial products according to their quality, rather than by the level of guarantee in a specific country, and the proposals are finally counting on clarifying the conditions for disbursement to clients of foreign banks," says Renáta Kadlecová, adding: "Last but not least, also the banks' obligation to inform depositors in a uniform manner about the insurance conditions prior to the conclusion of an agreement will be of benefit."
Published: 13.6.2010
