The European Commission is to propose changes to the rules on state guarantees for bankdeposits because it believes that the financial crisis has exposed the existing arrangements as inadequate.

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Michel Barnier, the European commissioner for the internal market, will propose a requirement that member states create dedicated funds to ensure that national deposit-guarantee schemes can cover their obligations to savers. He is also expected to propose a minimum contribution from the banking sector for these funds.

These steps would go beyond the EU’s existing legislation on deposit-guarantee schemes, which requires each member state to have a scheme and stipulates the minimum coverage for account holders.

In September 2008, a decision by Ireland to provide state guarantees of up to €100,000 for each account holder, changed the following month to an unlimited guarantee, threatened the single market and triggered a meeting of eurozone leaders on 12 October to hammer out common principles.

Minimum cover

National governments and the European Parliament agreed in March last year to raise the minimum level of cover for depositors from €20,000 to €50,000 (with a further increase to €100,000 to take effect by 31 December 2010). Barnier will not seek to change this level of cover, but Commission sources said that he will propose to speed up how quickly savers receive money from the schemes if their bank goes bankrupt. The payment deadline set by the current EU legislation is 20 working days after a bank becomes unable to repay its depositors, although this can be extended by a further ten working days in “wholly exceptional circumstances”.

Barnier will propose that national guarantee schemes should be linked together in a network so that resources can be pooled if large, cross-border banks get into financial difficulties.

Barnier will seek, however, to remove an exemption from deposit-guarantee schemes that Germany and Austria apply to their savings bank sectors. This is expected to lead to tensions with Germany, whose finance minister, Wolfgang Schäuble, has said that he would be firmly opposed to this.

The Commission believes it has to act to prevent any repeat of Iceland’s inability to compensate Dutch and British citizens who held accounts with the Icesave bank, which collapsed in October 2008. Iceland is bound by existing EU legislation on deposit guarantees because of its membership of the European Economic Area.

The Commission, which is expected to publish its proposals on 6 July or shortly thereafter, will also present ideas (in the form of a white paper) for improving the protection of deposits with insurance companies. Currently, 12 member states have schemes that guarantee the money that people place with insurers. The Commission plans to suggest that the EU should adopt legislation requiring such schemes are set up in each member state. It will also suggest that insurers should be required to provide up-front financial contributions to the schemes. It will launch a consultation on the matter that will run until November.