Cause and Effect in European Politics and Law

MEPs want protection of the deposits to 100,000 euros across the EU

Ralitsa Kovacheva, Evelina Topalova, May 25, 2011

The Committee on Economic and Monetary Affairs of the European Parliament has voted to increase the bank deposit protection limit from 50,000 to 100,000 euros, and to reduce the payouts deadline to 5 working days. MEPs, however, have allowed member states to decide how to design their deposit guarantee schemes, according to their national specificities.

According to the parliamentary rapporteur on the topic, Peter Simon (S&D, Germany), the changes to the current legislation are necessary to make sure that banks themselves, not taxpayers and states, would be in the frontline of any measures to protect depositors. “The text adopted today offers the same levels of protection and stability across the EU but also gives space to address the different realities, while ensuring that there will be no distortion," Mr Simon said

MEPs pay special attention on the preventive measures aimed at keeping a bank fully functional. To that end, “whereas the Commission proposal allows only one third of a scheme's funds to be used for this purpose, the EP committee provides considerable leeway for a scheme to use nearly all its funds in this direction, provided the members of the scheme are, together, considered by supervisors to be able to also honour any payout obligations that may arise”.

A guarantee scheme should reach a target fund level of 1.5% of all deposits which it guarantees. Unlike the Commission's proposal this to be achieved within 10 years, the Parliament considers that the period should be extended to 15 years, which would allow EU banks to remain internationally competitive. The Parliament supports the Commission's proposal to follow the "polluter pays" principle, whereby banks with greater risk profiles would be required to pay two and a half times more than banks with average risk. The risk level will be determined through a standardised methodology by the European Banking Authority.

Green MEP and a shadow draftsman Sven Giegold (Germany) welcomed the increased amount of guaranteed deposits, and the obligation of banks to have ex-ante capital financing for 1.5% of the guaranteed deposits. “We welcome that the committee supported a Green proposal to ensure risk adequate contributions towards the guarantee system by financial institutions. Clearly, the most effective way of ensuring this would have been through binding European-level regulation and we regret that this was not passed.”

Depositors should be able to receive their guaranteed savings within 5 working days, but until the end of 2016 Member States may choose to apply the current period of 20 working days. In this situation, however, savers can receive 5,000 euros within 5 working days. To enhance transparency, MEPs urge banks to clearly inform savers how their deposits are being guaranteed, and in case they are not guaranteed, savers should be allowed to withdraw their money without any penalties.

Before the changes are finally adopted, the European Parliament and the Council of EU finance ministers must reach an agreement on them. Negotiations will start after the Council adopts its position on the topic.