Luxembourg, 03/06/2008 (Agence Europe) - On Tuesday 3 June 2008, EU finance ministers continued their work on an EU response to avert or cope with a crisis arising from the collapse of a financial institution active in more than one member state (see EUROPE 9637 and 9517). This time, the debate focussed on EU rules governing national savings guarantee systems and existing links between these rules and the other financial crisis management mechanisms available to the member states. The idea was to provide political guidance to the Economic and Financial Committee (EFC) and the Financial Services Committee, which are due to publish suggestions for specific action in September 2008.
Directive 94/19/EC requires member states to set up national savings guarantee systems to avoid runs on banks like the problems that arose in September 2007 when British bank Northern Rock encountered severe liquidity problems and this caused savers to panic. Such systems involve government guarantees to ensure savers receive at least of €20,000 of their savings in the event of a bank or building society going bust.
Stable, reliable systems are needed, said EU Internal Market Commissioner Charlie McCreevy. He said the cross-border part of national savings guarantee systems had to be improved to ensure consumers were not treated unfairly. He called for faster compensation for savers in the event of a financial institution going bankrupt. The country most directly concerned, the United Kingdom, called for practical and immediate changes to be made to the cross-border provisions of national savings systems without necessarily revising the directive. Ireland opposes greater harmonisation of the rules but Spain would like changes to be made to the directive to lessen the differences between member states. Germany and Austria want to wait for the European Commission's report to be published in September before any decisions are made. The Netherlands is highlighting the importance of keeping consumers informed.
Member states implement Directive 94/19/EC in different ways and this could well pose problems in the event of a bank with business in more than one member state going bust because the bank's customers would be treated differently depending on the country where they have invested their savings. An EFC document comments that the differences can be enormous in practice with compensation timelines ranging from several months to several years - all within the same bank. The way the national savings guarantee systems are funded also differs from one member state to the next. Some member states have set up mechanisms requiring fair contributions to be paid by all banks in advance of any problems arising whereas others demand funding after the event, which has the advantage of not placing any extra financial burden on the banks. The coexistence of different funding mechanisms raises issues of fairness and can lead to complications in the interoperability of systems for cross-border business, explains the EFC. It adds that the €12 billion collected in advance by national savings guarantee systems is not such a heavy burden compared with the total commitments by banks in the EU.
The roles of the national savings guarantee systems also differ widely. Some do no more than provide compensation to savers. In other cases (like Germany, Austria, Belgium, Spain, Hungary, Italy and Poland), they can use the funding available to them to provide support to a bank that is a member of the system in order to pre-empt a crisis if the bank is experiencing difficulties. The national systems in Germany, Austria, Spain and Poland are capable of averting the collapse of banks by facilitating restructuring and mergers. Likewise, the Swedish system can intervene in bankruptcy proceedings and it has decision-making powers in the final stages of a crisis. According to the EFC, funding differences will impact on banks' costs and can be an obstacle to the restructuring of a bank with cross-border business. When one bank is bought up by another, it is in fact possible for the changed structure of the bank to contributions to a national savings deposit system to be lost. (M.B.)