Deposit insurance


Deposit insurance, deposit protection or deposit guarantee is a measure implemented in many countries to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay its debts when due. Deposit insurance or deposit guarantee systems are one component of a financial system safety net that promotes financial stability.

Process

Banks are allowed to lend or invest most of the money deposited with them instead of safe-keeping the full amounts. If many of a bank's borrowers fail to repay their loans when due, the bank's creditors, including its depositors, risk loss. Because they rely on customer deposits that can be withdrawn on little or no notice, banks in financial trouble are prone to bank runs, where depositors seek to withdraw funds quickly ahead of a possible bank insolvency. Because banking institution failures have the potential to trigger a broad spectrum of harmful events, including economic recessions, policy makers maintain deposit insurance schemes to protect depositors and to give them comfort that their funds are not at risk.
Deposit insurance institutions are for the most part government run or established, and may or may not be a part of a country's central bank, while some are private entities with government backing or completely private entities. There are a number of countries with more than one deposit insurance system in operation, including Austria, Canada, Germany, Italy, and the United States.

By country

According to the International Association of Deposit Insurers, as of 31 January 2014, 113 countries have instituted some form of explicit deposit insurance, up from 12 in 1974. Another 41 countries are considering the implementation of an explicit deposit insurance system.

Africa

Central Africa

Banks in the Economic Community of Central African States are eligible for an international system called the Deposit Guarantee Fund in Central Africa. Although the system is well capitalized, details of its failure response process remain to be determined.

South Africa

The Corporation for Deposit Insurance, a subsidiary of the South African Reserve Bank, was launched in April 2024. It insures up to R100,000 per depositor in the event of a bank failure.

Nigeria

The Nigeria Deposit Insurance Corporation is an independent Nigerian government agency established in 1989 to insure bank deposits, supervise financial institutions, and help resolve failing banks in order to maintain stability in Nigeria’s financial system. It protects depositors by guaranteeing insured funds up to a specified limit and ensures prompt payment when banks fail.
Under its deposit insurance scheme, the NDIC guarantees payment of deposits up to ₦5,000,000 for Deposit Money Banks and Mobile Money Operators, and ₦2,000,000 for Microfinance Banks, Primary Mortgage Banks, and Payment Service Banks, in the event of a bank failure..

Americas

Brazil

In Brazil, the creation of deposit insurance was authorized by Resolution 2197 of 1995, the National Monetary Council. This standard mandated the creation of a protection mechanism for credit holders against financial institutions, called "Credit Guarantee Fund". Currently, the FGC is regulated by Resolution 4222 of 2013. The Fiscal Responsibility Act prohibits the use of public funds to finance the losses, so it is formed exclusively by compulsory contributions from the participating institutions. The warranty is limited to R$250,000 per depositor. The Guarantor Credit Union Fund was created in order to protect depositors of credit unions and cooperative banks. As the FGC, the FGCoop guarantees up to R$250,000 and consists of compulsory contributions of cooperatives and cooperative banks.

Canada

Canada created the Canada Deposit Insurance Corporation in 1967. It is similar to the Federal Deposit Insurance Corporation in the United States. Since 1967, 43 financial institutions have failed in Canada and all were members of CDIC. There have been no failures since 1996. Information on the Canadian system can be found at www.cdic.ca. Insurance is restricted to registered member institutions, and covers only the first C$100,000 in very specific categories of accounts. Credit unions and Quebec's caisse populaire system are not insured federally because they are created under provincial charters and backed by provincial insurance plans, which generally follow the federal model. Funds in a foreign currency and guaranteed investment certificates with a term of longer than five years held in a CDIC-registered financial institution are insured as of 30 April 2020. Funds in foreign banks operating in Canada may or may not be covered depending on whether they are members of CDIC. Some funds in the Registered Retirement Savings Plan or registered retirement income fund at their bank may not be covered if they are invested in mutual funds or held in specific instruments like debentures issued by government or corporations. The general principle is to cover reasonable deposits and savings, but not deposits deliberately positioned to take risks for gain, such as mutual funds or stocks.
The roots of this reform can be traced back to the 19th century, such as Upper Canada's financial problems of 1866, the North American panic of 1872, and the 1923 failure of Toronto's Home Bank, symbolized today by Casa Loma. Historically, in Canada, regional risk has always been spread nationally within each large bank, unlike the uneven geography of US unit banking, layered with savings & loans of regional or national size, which in turn disperse their risk through investors. Generally speaking, the Canadian banking system is well regulated, in part by the Office of the Superintendent of Financial Institutions, which can in an extreme case close a financial institution. That and Canada's tight mortgage rules mean bank failures similar to the US are much less likely.

Mexico

In Mexico, the Instituto para la Protección al Ahorro Bancario is the deposit insurance set up by the country for account holders in Mexico. It insures up to 400,000 UDIs, the equivalent of $2,743,209.20 pesos for each account. In 1981, the General Law of Credit Institutions and Auxiliary Organizations provided for the creation of a fund to protect credit obligations assumed by banks.

United States

The Federal Deposit Insurance Corporation is the deposit insurer for the United States. Prior to the Civil War and in the 1920s, there were various sub-national deposit insurance schemes. The United States was the second country to institute national deposit insurance when it established the FDIC in the wake of the 1933 banking crisis that accompanied the Great Depression.
Most credit unions in the United States are insured by the National Credit Union Administration, a separate federally chartered agency, while others rely on private insurance arrangements. The FDIC and NCUA each insure up to $250,000 for each owner at an institution. Separately from these, the Securities Investor Protection Corporation provides limited asset protection, but not insurance, for the cash and securities of the customers of failed investment brokerages.
In Massachusetts, the Depositors Insurance Fund insures deposits in excess of the FDIC limits at state-chartered savings banks.

European Union

on deposit-guarantee schemes requires all member states to have a deposit guarantee scheme for at least 90% of the deposited amount, up to at least 20,000 euros per person. On 7 October 2008, the Ecofin meeting of EU's ministers of finance agreed to increase the minimum amount to 50,000. Timelines and details on procedures for the implementation, which is likely to be a national matter for the member states, was not immediately available. The increased amount followed on Ireland's move, in September 2008, to increase its deposit insurance to an unlimited amount. Many other EU countries, starting with the United Kingdom, reacted by increasing their limits to discourage people from transferring their savings to Irish banks.
In November 2007 a comprehensive report was published by the EU, with a description and comparison of each Insurance Guarantee Scheme in place for all EU member states. The report concluded that many of the schemes had restricted the appliance of guarantees to retail consumers, usually private individuals, although small or medium businesses were also sometimes placed into the retail category. All schemes are do not apply for big wholesale customers under the argument the latter are often in a better position than retail customers to assess the financial risks of particular firms with whom they engage or are able themselves to reduce their risk by using several financial banks/institutes. The report recommends this practice to continue, as limiting of the scheme's to "retail customers " helps to reduce the cost of the scheme but also helps to increase its available funds for those who actually need the guarantee when it is activated for the protection of claimants.

By country

In October 2008, many countries in the EU increased the amount covered by their deposit insurance schemes. Since these amounts are typically encoded in legislation, there was a certain delay before the new amounts were formally valid.
CountryCoverage
limit		CoverageValid
since		Deposit
insurance
organization		Comments and previous amounts
BelgiumEUR 100,000100%Fonds de Protection / Beschermings Fonds / Protection FundPreviously EUR 20,000 before 2009.
BulgariaEUR 100,000100%31 December 2010Bulgarian Deposit Insurance FundEUR 51,129 effective 15 April 1998
Amount raised to BGN 196,000 effective 31 December 2010. Article 23 of the Bank Deposit Guarantee Law says that the guaranteed amount for foreign currency deposits shall be paid out in Bulgarian levs calculated using the Bulgarian National Bank's exchange rate on the first day of paying out of guaranteed deposits.
CroatiaEUR 100,000100%1 July 2013 - 100% of the first HRK 30,000 and 75% between 30,000 and 50,000 effective 20 June 1997.
Amount raised to HRK 100,000 effective 1 July 1998.
Amount raised to 400,000 effective 15 October 2008.
CyprusEUR 100,000100%September 2000
Czech RepublicEUR 100,000100%Deposit Insurance Fund90% of EUR 25,000 effective 2002
100 % coverage and amount raised to EUR 50,000 effective 2008.
Credit unions are covered since 2006.
DenmarkDKK 750,000100%30 September 2010For the two-year period from 5 October 2008 to 30 September 2010, an unlimited governmental guarantee for deposits was added.
FinlandEUR 100,000100%1 January 2011Financial Stability Authority100% insured up to EUR 25,000 effective 1998.
Amount increased to EUR 50,000 effective 8 October 2008.
FranceEUR 100,000100%25 June 1999Fonds de Garantie des Dépôts et de Résolution Following the Irish legislative change to unlimited state guarantee, and the German announcement of unlimited support, the French President declared on 13 October 2008 that "The government will not let any French bank fail", in a speech that was posted on the country's official website, www.gouvernement.fr. This political commitment has so far held
GermanyEUR 100,000100%1 January 2011
The four banking associations run voluntary additional guarantee schemes, which go beyond the European minimum of EUR 100,000.For instance for BdB member banks, "The protection ceiling for each creditor is 30% of the liable capital of the Bank..."

An unlimited state guarantee was announced in October 2008. The legal details are nevertheless unclear. "It is a political declaration" said Torsten Albig.
GreeceEUR 100,000100%October 2008Was 20,000 EUR, increased in October 2008
HungaryEUR 100,000100%
IrelandEUR 100,000100%The Deposit Guarantee Scheme The Deposit Guarantee Scheme protects depositors in the event of a bank, building society or credit union authorised by the Central Bank of Ireland being unable to repay deposits. Deposits up to EUR 100,000 per person per institution are protected. The DGS is obliged to issue compensation to depositors duly verified as eligible within 20 working days of a credit institution failing.
ItalyEUR 100,000100%24 March 2011 Fondo Interbancario di Tutela dei Depositi Fondo di Garanzia dei Depositanti del Credito CooperativoAmount decreased from EUR 103,291.38.
LatviaEUR 100,000100%1 January 2011
LithuaniaEUR 100,000100%Previously, the insured amount LTL 45,000 ; in 2008 it was increased to 100% of deposits up to EUR 20,000. In 2009, the limit was increased to EUR 100,000.
LuxembourgEUR 100,000100%Fonds de garantie des dépôts Luxembourg Previously, the insured amount was EUR 20,000. In 2009, the limit was increased to EUR 100,000.
MaltaEUR 100,000100%21 November 2003Depositor Compensation SchemeThe Maltese Depositor Compensation Scheme is managed by a Management Committee which is appointed by the Malta Financial Services Authority. The committee is made up of persons representing the MFSA, the Central Bank of Malta, investment firms, the banks and customers.
NetherlandsEUR 100,000100%7 October 2008DepositogarantiestelselBefore 7 October 2008 coverage was 100% of first EUR 20,000, 90% of next EUR 20,000.
PolandEUR 100,000 100%30 December 2010Bankowy Fundusz Gwarancyjny Amount raised from EUR 50,000 on 30 December 2010
PortugalEUR 100,000100%November 2008Amount raised from EUR 25,000 to EUR 100,000 in November 2008.
Provisions of Decree-Law Article 166 says "According to article 12 of Decree-Law No. 211 – A/2008, of 3 November 2008, until 31 December 2011, the limit shall be increased from € 25,000 to € 100,000". Article 2 of the Decree-Law No. 119/2011 set the limit of €100,000 as permanent
RomaniaEUR 100,000100%1996Established in 1996 as per the first Annual Report available in 2005.
SlovakiaEUR 100,000100%1 November 2008Deposit Protection FundCredit unions are not covered.
SloveniaEUR 100,000100%28 July 2010, the central bank of the Republic of Slovenia
The Bank of Slovenia joined the Eurosystem in 2007, when the euro replaced the tolar.
SpainEUR 100,000100%11 October 2008Fondo de Garantía de DepósitosBefore that it was EUR 20,000. Since 2011 there is a unified fund for banks, savings banks and cooperative banks.
SwedenSEK 1,050,000100%31 December 2010Swedish National Debt OfficeThe deposit limit was changed to 950,000 SEK on 1 July 2016, which at the time was valued at approximately 100,000 EUR. In 2021 it was raised to the current amount.