20 February 2007

Commission Scenario Analysis on EU Deposit Guarantee Schemes

The Commission released a report estimating the effects of changing the funding mechanisms of EU Deposit Guarantee Schemes. The cost implications of harmonising the EU DGS financing system are investigated by building four scenarios and analyzing changes in the contributions of each DGS. The scenarios were defined by Commission Services after considering the information collected by means of a survey distributed across EU DGS. According to data collected, member states have been grouped into categories reflecting their fund adequacy, measured in terms of the ratio between the size of their fund and the total amount of their eligible deposits.

The attached annexes include a description of data collected through the survey not directly used in the scenario analysis, and give insight on the functioning of the schemes on a DGS by DGS basis.

The present report is an extension of the Interim Report, in terms both of dimension of the dataset and types of analysis performed.

In support of the review of Directive 94/19/EEC on Deposit Guarantee Schemes, the Commission's Joint Research Centre has been requested to investigate the cost implications associated with the possible harmonization of Deposit Guarantee Schemes' funding mechanisms. At present, the Directive leaves the Member States free to choose the funding mechanism best suited to their own banking environment.

As a result, guarantee schemes' funding systems in the EU are widely heterogeneous. While some Deposit Guarantee Schemes are financed by regular contributions from members (banks) in order to build up or maintain a float ready to be used in the event of a crisis ('ex ante'), others are not pre-financed at all, but require their members to step in only after a bank has failed and to finance payouts to depositors ('ex post'). There are also mixed forms of schemes between ex ante and ex post financing.

Different cost structures in different countries might lead to a distortion of competition among banks, which would not be in line with the single market objective. Thus, the Commission has investigated whether there is a case for harmonizing the way in which schemes are funded. The Commission's Joint Research Centre has been asked to conduct of a quantitative analysis of the costs associated with modifying the existing funding mechanisms of deposit guarantee schemes throughout the EU on the basis of different scenarios.

Final report
Annex I - Additional information on the EU DGS
Annex II - Overview of levels of coverage and funding mechanisms applied across the EU
Annex III - Summary Tables
Annex IV - List of Definitions and Examples
Annex V - Questionnaire

© Graham Bishop