Dáil Éireann Debate, Wednesday - 17 June 2015
95. Deputy Thomas P. Broughan asked the Minister for Finance his plans for the transposition of the European Union deposit guarantee directive into law; the changes that will be made to current deposit guarantee schemes; and if he will make a statement on the matter. [24197/15]
View answerThe DGS Directive which applies to all credit institutions, whether banks or credit unions, entered into force on 4 July 2014 and is required to be transposed into Irish law by 3 July 2015 in order to be applied from 4 July 2015.
The main objective of the Directive is to introduce greater harmonisation in areas such as the funding mechanism of DGSs, the introduction of risk-based contributions, level of coverage and the harmonisation of the scope of products and depositors covered. It does not change the basic coverage level of €100,000.
The major changes that the Directive introduces are as follows:
(i) it introduces an added protection for what are known as temporary high balances for a period of between 3 and 12 months. These balances are over and above the standard coverage level of €100,000 and are designed to provide short-term protection, in circumstances where a person deposits money from for instance a real estate transaction.
(ii) it will require that we change the nature of the funding arrangements for the DGS. Currently, these are asset based in the form of ring-fenced deposits in the deposit protection account in the Central Bank which can be called upon to fund a compensation event for depositors. However, once the new arrangements are in place, banks and credit unions will have to pay contributions to the DGS which will be reflected as a cost in their financial accounts.
(iii) it will not be possible to provide DGS coverage of up to €100,000 for deposits held by credit unions with banks as is currently permitted. The rationale for this is that credit unions are classified as credit institutions and Article 5(1) of the Directive excludes from any repayment by a DGS, deposits made by other credit institutions on their own behalf and for their own account.
(iv) a reduction in the number of days that a DGS must pay out within, from 20 working days to 7 working days. However, this is phased in over an 8 year period.
In relation to the calculation of contributions to the DGS (Article 13), the Directive provides that Member States may provide for lower contributions for low-risk sectors which are regulated under national law. As part of the transposition, I will give consideration as to whether credit unions can be so categorised. It should be noted that the Directive allows Member States up until 31 May 2016 to implement this Article and it is likely that we will avail of at least some of this extra time.
Finally, you should be aware that I am giving consideration to legislating for maintaining the availability of the existing deposit protection account resources in the early years of the build-up of the new fund. The purpose of such an arrangement would be to maintain the level of overall funds available for DGS purposes at an amount close to the existing arrangements. This matter is still the subject of legal advice and it is almost certain that if it is permissible, primary legislation will be required in order to achieve this objective.
