Government Increases Deposit Guarantee Limit to €100,000 per depositor

20^th September 2008 

The Government has decided to increase the statutory limit for the deposit guarantee scheme for banks and building societies from €20,000 to €100,000 per depositor per institution. The cover will apply to 100% of each individual’s deposit. This guarantee level will also apply to credit union savers.

Announcing the decision, the Minister for Finance, Brian Lenihan TD, said “I want it to be known that the Government is confident about the strength and resilience of the Irish financial system. The Government is committed to the stability of our financial system, so that money placed with an Irish credit institution would not be at risk. As I said yesterday, the Irish Government wants to protect the whole financial system, secure its stability and ensure that all deposits in Irish financial institutions are safe.”

The Minister added “the Central Bank and Financial Regulator have stressed the soundness and stability of the Irish financial system. This measure provides additional reassurance to depositors in Ireland that their savings are safe. The new guarantee level is now among the highest in the EU.”

The Minister also commented that notwithstanding the uncertainty caused by the turbulence in international financial markets over the last week, it is encouraging that the banks have retained the confidence of their customers.

This measure has been under consideration for some time, and the Minister believes that this is the appropriate time to make the announcement.

Ends

Notes for Editors

Legal basis to the Deposit Protection Scheme

The legal basis for the Deposit Protection Scheme in Ireland is the European Communities (Deposit Guarantee Schemes) Regulations, 1995. These Regulations implemented the European Union Directive on Deposit Guarantee Schemes (94/19/EC). The Irish regulations were amended in 1999 to provide for a maximum compensation of €20,000.

Legislation

Legislation will be introduced shortly by the Minister to implement the new guarantee level but this new level will have affect from today following the Government’s decision.

EU Guarantee Levels

The single largest number of EU Member States currently have guarantee thresholds of €20,000 – Austria, Belgium, Cyprus, Germany, Greece, Ireland, Luxembourg, Malta, Slovakia, Spain. Other States have thresholds variously in excess of this – e.g. Finland and Portugal €25,000, Netherlands €38,000, Denmark €40,300, UK €48,500 euro equivalent of £35,000) and Italy €103,000.

EU Review

Ireland is participating in the ongoing review of the EU Deposit Guarantee Schemes Directive. This review includes consideration of the minimum level of the EU guarantee but also focus on wider policy areas such as co-insurance requirements (under which depositors bore 10% of losses which is being abolished for the Irish scheme) improving the speed of payouts, better depositor information, the case for gross rather than net compensation (as at present) and cross-border interoperability of schemes. It is expected that the conclusions of this review will be reached by end-year. In the context of the conclusions of the EU review, any further changes required in the Irish Deposit Guarantee Scheme will be progressed to ensure that savers in Ireland benefit from safeguards in line with EU best practice.

Funding of the Deposit Guarantee Scheme

The level of contribution required from each credit institution is 0.2% of eligible deposits held at all branches of the credit institution in the EEA, including deposits on current accounts and share accounts with a building society, but excluding interbank deposits and deposits represented by negotiable certificates of deposit. A minimum contribution of €25,400 is required. Each contribution is maintained in a Deposit Protection Account at the CBFSAI. As of 2007, the total amount held in Deposit Protection Accounts was €526 million.

Appropriate, mechanisms will also be put in place, in consultation with the financial institutions to increase the level of funds in the Deposit Protection Accounts over time but in the interim, the existing system provides for the availability of additional funds from the CBFSAI if required.

Coverage of the Deposit Protection Scheme

The Deposit Protection Scheme currently covers:

• current accounts;

• demand deposit accounts;

• term deposit accounts; and

• share accounts with building societies (other than shares which fall within the definition of own funds)

held with banks, building societies and other types of deposit-taking institutions (other than credit unions) regulated by the Financial Regulator. It is now being extended to include share and deposit accounts in credit unions.

EU Branches

Deposits with credit institutions authorised in another European Economic Area (EEA) country and operating in Ireland on a branch basis are covered under that country's system.

Credit Unions

The Irish League of Credit Unions (ILCU) has since 1989, operated on an all-island basis a savings protection scheme (SPS) for credit unions. The SPS has, to date, operated by providing financial support to credit unions that get into difficulty and it has never been necessary to make savings protection payments to individual credit union members. Under the SPS regime no credit union has become insolvent and no member of a credit union has experienced any loss of shares or deposits. The Registrar of Credit Unions in the Financial Regulator is working closely with ILCU to approve a reform to SPS. It is expected that these discussions would conclude shortly.

It is intended that the guarantee that has now been announced for credit institution savers would act as a backstop to an approved SPS scheme for credit unions.

Operation of the DGS

The Deposit Protection Scheme in Ireland is administered by the Central Bank and Financial Services Authority of Ireland (CBFSAI).

Other compensation schemes

The Minister will be requesting the views of consumer interests, industry and other stakeholders regarding the implications of the announcement for investor compensation levels and the case for introducing an insurance guarantee scheme for the life sector.

Further Information

Further information on the Deposit Protection Scheme in Ireland can be found at the Financial Regulators consumer information website www.itsyourmoney.ie .

Any further queries should be addressed to the Department of Finance Press Office at 01-6767571 or Eoin Dorgan.