© European Commission

In the light of the recent difficulties in the banking sector, Finance Ministers at the Council meeting on 3 June in Luxembourg discussed the options for improving the functioning of deposit guarantee schemes (DGS) in the EU. The schemes can play an important role in maintaining confidence in the banking system as they ensure the reimbursement of deposits up to a certain amount if a bank is unable to repay its customers. In this way, they can play a crucial role in preventing panic reactions by depositors and ensuring financial stability.

The Financial Stability Forum, an international forum of central banks, supervisory authorities, national ministries and international financial institutions, recently recommended a review of DGS. In the European Union,Directive 94/19/ECrequires Member States to ensure the existence of one or more DGS that can reimburse depositors at least up to 20 000 euro within three months, if a bank fails. However, the manner in which these schemes function in practice differs significantly across the EU. The differences concern, for instance, the types of deposits covered, the level of protection offered to customers and the financing of the scheme.

The key question is whether there is a case for developing general common principles for DGS in order to keep pace with increased financial integration in Europe. In particular, differences in the way schemes are financed could constitute an obstacle to cross-border consolidation in the banking sector and lead to competitive distortions. The diversity of national DGS also raises questions regarding equal treatment of depositors across the EU.

The European Commission is expected to submit a report on policy options by September. On this basis, the Council will continue its debate on the review of the DGS Directive. Final results should be arrived at by March 2009.

More information:

Council Press release (pdf)

Council webcast of press conference

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