Deposit insurance

Every Austrian bank is legally required to be a member of a deposit guarantee scheme (DGS) and to finance it through regular contributions. There are currently three DGSs in Austria, which each have their own deposit insurance fund: 

• Sparkassen-Haftungs GmbH (s-Haftung)
• Österreichische Raiffeisen-Sicherungseinrichtung eGen (ÖRS) 
• Einlagensicherung Austria GmbH (ESA)

A DGS reimburses customers for their covered deposits if a bank is no longer able to do so. The decision to trigger reimbursement is made by the FMA, which must publish the occurrence of a deposit insurance event on its website without delay.

Covered deposits include balances on

• current accounts
• savings accounts
• building savings and loan contracts
• securities clearing accounts (but not custody accounts)

In a deposit insurance event, the DGS contacts all depositors and asks them for their bank account details so that the covered deposits can be reimbursed. Reimbursement takes place within seven working days.

While DGSs provide effective protection, it is important to remember: Deposits with a bank are claims that depositors have vis-à-vis this bank. In other words, depositors are creditors and may lose money if a bank becomes insolvent. This may happen, for example, if a depositor holds more than EUR 100,000 in a single account. Choosing a bank is like any other financial decision: you should weigh up risks against returns. Depositors are entitled to the amount they have paid into their account and the agreed interest. By paying interest on deposits, banks remunerate depositors for making their money available to them.

The money a DGS uses to compensate depositors comes from the banks that are members to the scheme. Banks pay regular contributions to their DGS. In the EU, the ex ante funding of any DGS must amount to 0.8% of covered deposits. After a deposit insurance event, it must be ensured that the DGS funds reach this level again in a timely manner.

In a deposit insurance event, depositors are compensated by the DGS of which the distressed bank is a member. If necessary, other DGSs must contribute to the reimbursement of depositors. In large deposit insurance events, all DGSs may be required to contribute. This may also mean that banks must provide additional funds to facilitate full reimbursement. Therefore, a strong funding system with clearly specified rules has been established.

DGSs get their expenditure covered from the insolvent bank’s estate (ideally up to 100%), that is, from the income earned through the sale of the insolvent bank’s assets. The Austrian Deposit Guarantee Schemes and Investor Compensation Act (ESAEG) sets out all relevant rules.

Since a very big deposit insurance event may overwhelm this system, very large banks are subject to the resolution regime. Resolution is a mechanism that is meant to ensure that a large bank’s market exit because of insolvency does not have a negative impact on other market participants and financial stability. Under the resolution scheme, covered deposits are protected, but a bank’s insolvency does not become a deposit insurance event. Depositors keep their covered deposits without reimbursement by a DGS.

The supervision of DGSs in Austria is the joint responsibility of the FMA and the OeNB. Like in banking supervision, the OeNB is tasked with analysing DGSs and their effectiveness and conducting on-site inspections.

In particular, the OeNB reviews, on an ongoing basis (and at least once a year), banks’ compliance with the relevant legal requirements (as set out in the ESAEG). Among other things, the OeNB examines whether banks fulfil all criteria that apply to the investment of DGS funds. During on-site inspections, the OeNB evaluates DGSs’ compliance with the organisational requirements. Moreover, the OeNB checks whether systems, processes and procedures are functioning properly so that in a deposit insurance event, all depositors can be reimbursed within the specified time limit.

The OeNB’s regular evaluation of the deposit insurance system’s effectiveness is part of integrated macroprudential supervision in Austria. Its results feed into decisions regarding macroprudential capital buffers (which are additional own funds held by banks as crisis reserves) and resolution planning. The OeNB thereby contributes to a consistent approach in ex ante crisis prevention and ex post crisis management in Austria. A stricter supervisory regime applies to banks whose failure would have significantly adverse effects on the financial system and the real economy.