EBA seeks transparency on Deposit Guarantee Schemes’ available financial means
The European Banking Authority (EBA) has launched a consultation on its draft Guidelines on the delineation and reporting of ‘available financial means’ of Deposit Guarantee Schemes (DGSs), essentially ensuring that institutions really do have the resources to which they lay claim.
Right around the world, regulators and governments seek to ensure confidence amongst customers of banks and other credit institutions by way of ‘Deposit Guarantees’ – the level of deposit that will be honoured, even in the extremely rare case of a catastrophic failure. While these guarantees were once the direct responsibility of central banks (aka ‘tax payers’), increasingly the preferred financial architecture around the world is to ensure that regulated credit institutions have ring-fenced these liabilities with matching assets in such a way as to ensure that the burden of any future crash would fall on these institutions themselves. Such schemes appear to have become well established; the EBA’s latest figures on DGSs for 2020, just released, show a substantial increase in both available financial means and covered deposits.
The new draft guidelines stipulate that only funds that credit institutions have contributed, or that stem indirectly from such contributions such as recoveries or investment income, should count towards reaching the target level of the DGS fund. Conversely, funds that stem directly or indirectly from borrowed resources should not count. This clarification aims to avert the possibility of a DGS meeting its target level by taking out a loan.
Reporting requirements will be expanded to capture this information on available financial means more clearly, as well as any outstanding liabilities of DGSs, unclaimed repayments, and high-level information on alternative funding arrangements. The EBA aims to increase the transparency and comparability of information on the financial position of DGSs, and therefore improve consumer confidence in financial stability. Comments are due by 28 July 2021.
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