Shearman & Sterling LLP | FinReg | European Banking Authority Publishes Final Set of Recommendations for Improving the EU Deposit Guarantee Scheme Directive
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  • European Banking Authority Publishes Final Set of Recommendations for Improving the EU Deposit Guarantee Scheme Directive
    02/11/2020
    The European Banking Authority has published the third in a series of three opinions on the implementation of the Deposit Guarantee Scheme Directive in the EU. This opinion relates to DGS funding and uses of DGS funds. It is dated January 23, 2020. The first opinion related to the eligibility of deposits, coverage level and cooperation between deposit guarantee schemes and was published in August 2019. The second opinion, published in October 2019, was on DGS payouts. The opinions have been prepared to assist the European Commission in its obligation to report on the implementation of the DGSD.

    The EBA recommends the following:
     
    1. Amending the DGSD to unequivocally provide that funds or low-risk assets arising from or being financed by borrowed resources do not count towards available financial means.
    2. Providing clarity on whether or not there is a hierarchy or sequence in which different funding sources, such as available financial means, extraordinary contributions and alternative funding arrangements, can be used. There are currently divergent approaches to this across the EU.
    3. Increasing the transparency of DGS funding by requiring Member States regularly to provide information to the EBA.
    4. Clarifying when DGS funds can be used for interventions other than payouts.
    5. Introducing a mechanism to allow a DGS to use a failed firm's assets for DGS payouts.
    6. Clarifying the approach to payment commitments, including changing the term to "irrevocable payment commitments".
    7. Clarifying various issues related to the investment strategy of DGSs.

    The EBA does not consider that any amendments to the framework are needed on target level, collection of contributions or fund access, except that clarity could be provided on the expected timeline for the approval of a reduced minimum target level by introducing a specific deadline. Likewise, the EBA does not think that contributions from third-country branches need to be amended, although this may be revisited in the future in light of the U.K.'s departure from the EU.

    View the EBA's opinion on DGS funding and uses of DGS funds.

    View details of EBA's opinion on the eligibility of deposits, coverage level and cooperation between deposit guarantee schemes.

    View details of the EBA's opinion on DGS payouts.

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