The European Commission on Tuesday set out, in the form of a Communication, its approach to modernising current EU legislation on deposit guarantee schemes, which provide consumers with a safety net so that, if a bank fails, they will be able to recover at least EUR20,000 of their deposits.
The Commission has concluded that while the current rules are sufficient for the time being, a number of self-regulatory steps could be taken to improve how schemes work cross-border within the EU. A more fundamental overhaul is considered premature at this stage, while any decision about further convergence of national rules and practices is tied to broader discussions on crisis management.
Internal Market and Services Commissioner Charlie McCreevy explained that:
"Deposit guarantee schemes are crucial to the EU's financial stability. But the different ways they work at national level can make fast and efficient crisis management difficult. We are proposing that the banking industry address some of these issues itself, without the need for new legislation – another example of better regulation in practice. However, we do not rule out a fundamental legislative overhaul at some point in the future if it proves necessary."
The Deposit Guarantee Schemes (DGS) Directive obliges all Member States to set up compensation schemes for depositors. However, some Member States have introduced guarantee thresholds higher than the minimum EUR20,000, and how the schemes function in practice is also not uniform across the EU.
The Communication has examined how this situation, combined with increased competition and integration in the EU banking market, affects the functioning of the current rules.
Based on the results of a consultation launched in 2005, the Communication has proposed a number of improvements that the EU banking industry could introduce by 'self-regulatory' means, including: fine tuning "topping up" arrangements (where a bank branch in another Member State voluntarily joins the host country's deposit guarantee system); shortening the time it takes for schemes to pay out to depositors after a bank failure; and improving exchange of information between schemes.
The Communication also concluded that there is currently no case for changing the current minimum guarantee level of EUR20,000. Research carried out by the Commission's Joint Research Centre (JRC) has provided evidence that the differences in deposit levels held by depositors across EU Member States remain too large - especially since the 2004 EU enlargement.
In addition, discussions are currently underway in a number of different forums about the efficiency of current supervisory arrangements. As DGS constitute an important component of the supervisory safety net intended to mitigate the effect of cross-border banking crises, further clarity is needed - in particular on the question of the overall division of supervisory responsibilities and financial liabilities in crisis situations - before it can be decided whether more fundamental changes to the existing DGS arrangements might prove necessary.
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