Deposit Guarantee Fund reaches target level of 0.8% of guaranteed deposits

Fund formation important for confidence in deposit guarantee

The formation of a fund from which DGS compensations can be financed is important for confidence in the Dutch Deposit Guarantee. It ensures that account holders can quickly access their covered deposits in the event of a bank failure. DNB must make the DGS compensations available to account holders within seven working days. DNB will transfer this amount as soon as possible after the account holder has provided a new account number. This protection means that savers are less likely to withdraw their money from the bank if payment problems arise. In this way, the DGS significantly contributes to financial stability. The gradual build-up of the DGF started in 2016. Since then, banks have been contributing to the fund quarterly. The individual contribution of banks depends on the amount of covered deposits and the risk profile of the bank.

Fund sufficient as a financing source in many cases

With the five billion euros now in the fund, there are sufficient resources available to immediately pay out the covered deposits from the fund for almost all Dutch banks if the bank goes bankrupt. However, not all cases will result in bank liquidation. For large banks, the amount of covered deposits is much higher than what is in the fund. If these banks fail, resolution tools will be used to protect the bank's critical functions and the public interest. The bank will either be relaunched or be sold, ensuring that customers retain access to their balances. The DGF will not need to be called upon to pay DGS compensations in such cases.

Alternative sources of financing also available

In the event of a bank failure and insufficient funds in the DGF, there are alternative sources of financing available. DNB can directly request an extra contribution from the banks participating in the Dutch Deposit Guarantee. Additionally, the DGF can attract financing from third parties, as it has secured a four billion euro credit facility from the major Dutch banks. In extreme cases, the DGF can request a bridge loan from the Minister of Finance. These additional sources of financing enable the DGF to bridge the period until payments are received from the bankrupt bank's estate. The DGF is in that regard protected by the Bankruptcy Act, which stipulates that covered deposits and the DGS are prioritized over most other claims. This, together with the well-funded DGF, ensures credible protection and lower costs for the sector and account holders.

In the new phase, the DGF will be maintained by premiums from growing banks

From Q3 2024, banks will only contribute to maintaining the fund size. Adjustments have been made to the Decree on Special Prudential Measures, Investor Compensation and Deposit Guarantees (Besluit bijzondere prudentiële maatregelen) for this purpose. Assuming a continuing average increase of 3.5% in guaranteed deposits, banks would need to contribute approximately 175 million euros annually. Only banks with a growing amount of covered deposits will be charged. Each quarter, the fund will be replenished if necessary. Any returns the DGF earns on its funds may lead to lower premiums. If the fund needs to be used, it will be refilled within a maximum of six years.

Revisions to European directive and impact on DGF

This last point and other issues are under discussion within an ongoing revision of the European DGS Directive in the broader bank resolution framework (CMDI). The European Parliament, the Council of Ministers, and the European Commission will negotiate these issues in the coming period. A European Deposit Insurance Scheme (EDIS) could offer even more security in the future. By pooling the financial strength of various national funds or providing an alternative liquidity guarantee in a first phase, an even stronger safety net could be created to protect depositors in the Netherlands and other EU Member states.