How is the EU deposit guarantee scheme organized?
In principle, if a bank in the European Union (EU) goes bankrupt, deposits such as current account balances, demand deposits and term deposits are legally protected up to €100,000 per customer and bank. In the case of joint accounts, such as those of married couples, the protection increases to €200,000.
The guaranteed amount may increase up to 500,000 euros. This is the case if you have a lot of money in your account due to special life circumstances – for example, sale of owner-occupied real estate, divorce, retirement, severance pay after termination of employment or disability. However, this increased amount of protection is only valid for six months after you receive the money in the account. The guaranteed amount also includes the right to an interest payment.
Contrary to what many customers think, there is still no single European deposit guarantee scheme under which savers are compensated in the event of a bank collapse. Instead, deposit insurance is in the hands of individual member states. However, the EU has established uniform rules for national guarantee schemes. The countries of the European Economic Area (EEA) have joined them.
The EU Deposit Guarantee Directive of 2014 obliges individual countries to establish national deposit guarantee funds and provide them with minimum assets by 2024. Previously, guarantee schemes in many EU countries were not required to have equity to compensate investors in the event of an incident.
Another EU requirement is the accelerated payment of assets in the event of bank insolvency: while originally a deadline of 20 days was in effect, member states are now obliged to ensure payment within seven days no later than 2024.
Another important rule concerns informing customers about deposit protection: All credit institutions are legally obliged to inform their customers about the protection scheme to which they belong.
Whether and in what form a single European deposit guarantee scheme will be created in the future remains an open question. In November 2015, the EU Commission presented a proposal for a European Deposit Insurance Scheme (EDIS), which is based on national guarantee schemes and should be introduced gradually.
Changes to deposit insurance are part of the European Banking Union, which since 2014 has been gradually replacing national rules with uniform European regulations for the banking sector. This also includes improved banking supervision: large and cross-border banks in the Eurozone should be better supervised, and uniform measures should be applied to them in case of bankruptcy.
In addition, there are unified instruments in case a bank has to cease operations. This includes, for example, the rule that shareholders and creditors of failed banks must share in the costs of settlement. However, legally secured deposits in current and savings accounts are excluded from this – so assets are protected. Small financial institutions will continue to be liquidated by the national authorities.
In Germany, statutory deposit insurance is more confusing than in any other EU country. The reason is the complex banking system: there are private banks such as Deutsche Bank and ING. Then there are state banks and the investment banks of the federal states. In addition, there are savings and cooperative banks.
Compensation scheme for private banks
On behalf of the Federal Ministry of Finance, it is responsible for mandatory deposit insurance and compensation for depositors of private banks in Germany. However, not all institutions offering overnight deposit accounts and term deposits in Germany are subject to local deposit insurance. For some, the guarantor of deposits is the country in which the bank is located. Consorsbank, for example, is affiliated with BNP Paribas and is therefore part of the French deposit guarantee fund. Leaseplan bank is owned by a Dutch fund.
EdB is financed by member contributions, which are managed as a so-called dependent special fund of the federal government. This means that individual banks, not the federal government, guarantee deposits among themselves. The EdB does not provide information about the amount of its funds or the portion of savings deposits that are actually guaranteed by it.