Deposit Guarantee Schemes
Deposit guarantee and investor compensation schemes
Two types of bank customers are protected by deposit guarantee and investor compensation schemes: (1) customers with credit balances on accounts or deposits in savings passbooks, and (2) investors using bank-intermediated securities services that are subject to investor compensation. Here we focus on deposit guarantee schemes, which ensure that banks will be able to pay out deposits at all times, even if they are placed into insolvency or become illiquid. In a payout event, all deposits up to EUR 100,000 per customer and bank will be protected. All credit institutions incorporated in Austria which intend to take in customer deposits or offer securities services subject to investor compensation must join a protection scheme.
In Austria, the Deposit Guarantee Schemes and Investor Compensation Act (ESAEG) took effect on August 15, 2015. The legal framework reflects the principle that credit institutions, and not the taxpayer, must bear the financial consequences of payout events. Potential insurance payouts are to be financed by a deposit insurance fund, to which the members of deposit guarantee schemes make annual contributions until 2024.
Three deposit guarantee schemes currently coexist in Austria:
For details on the procedures applying to payout events, see the websites of the relevant deposit guarantee scheme.
Supervision of deposit guarantee schemes
Under the Deposit Guarantee Schemes and Investor Compensation Act (ESAEG), the Austrian Financial Market Authority (FMA) and the Oesterreichische Nationalbank (OeNB) have become responsible for the supervision of Austrian deposit guarantee schemes. Deposit guarantee schemes are obliged to use risk-based models to calculate the required member contributions. To prepare its expert assessments, the OeNB reviews deposit guarantee schemes’ compliance with ESAEG provisions and analyzes their development on a regular basis (at least at annual intervals). Another major task of the OeNB is to continuously monitor deposit guarantee schemes’ compliance with the provisions governing the investment of fund contributions.
The legal framework also provides for on-site inspections of deposit guarantee schemes. In line with the legal provisions, all deposit guarantee schemes are responsible for establishing structures and processes, above all with a view to ensuring adequate process and risk management for potential payout events, calculating covered and eligible deposits, administering the deposit insurance fund and collecting member contributions to the fund. On-site inspections serve to evaluate whether the organizational framework established by a deposit guarantee scheme is adequate and whether the implemented systems, processes and procedures are able to ensure the timely reimbursement of all depositors in a payout event.
Building a European deposit insurance scheme
Establishing a European deposit insurance scheme as the third pillar of banking union requires the harmonization of the existing national deposit guarantee schemes. A step in this direction was the adoption of the Deposit Guarantee Scheme Directive (DGSD), which ensures that, throughout the EU, deposits are protected up to a harmonized coverage level of EUR 100,000 per depositor and per bank. Moreover, the DGSD requires banks to make ex ante (rather than ex post) contributions to deposit guarantee schemes and to pay out deposits to depositors within a period of 7 (rather than 20) working days. The DGSD was implemented in Austrian law with the Deposit Guarantee Schemes and Investor Compensation Act (ESAEG).
In November 2015, the European Commission published a proposal for a regulation to establish a European deposit insurance scheme (EDIS), which was reinforced in October 2017 with a Commission Communication containing adjustments. EDIS will build on the national deposit guarantee schemes as harmonized under the DGSD and provide full insurance by 2024 at the latest. The new scheme is scheduled to be introduced in stages. At the initial stage, EDIS will only provide limited reinsurance, but it will move gradually to co-insurance during the second stage. A Council working group focused on analyzing various models of liquidity provision at the reinsurance stage. The common deposit insurance fund (DIF), which is to be managed under the auspices of the Single Resolution Board (SRB), is to be built up gradually through contributions by banks until the target level of EUR 43 billion is reached in 2024. By covering deposits up to EUR 100,000 per depositor and per bank, EDIS will ensure that the level of depositor protection remains unchanged.