The Dutch DGS guarantees bank deposits (including savings and funds on current accounts) of private individuals and enterprises, up to a maximum of EUR 100,000 per depositor per bank. The scheme pays out if private individuals and enterprises are no longer able to access their deposits because the bank is insolvent.
At present, the DGS is based on ex-post funding. Banks only pay if the scheme is invoked, i.e., if a bank is declared insolvent. The financial crisis has revealed that this method of funding is no longer adequate. The Cabinet has therefore decided that in the future banks must contribute to the DGS in advance (ex-ante funding). Banks will pay quarterly contributions to the DGS which will flow into the deposit guarantee fund. If the scheme is invoked, the fund will pay out. If the fund is insufficient, the remaining costs will be apportioned among the banks in line with the present system.
The introduction of ex-ante funding serves a number of objectives. A first objective is to ensure that also the bank that eventually fails contributes to the DGS, a situation that has not been possible hitherto. Secondly, the availability of a deposit guarantee fund supports the credibility of the DGS, seeing as savings have already been put aside. Thirdly, ex-ante funding helps in spreading the costs of the DGS over time as banks have to pay less at the moment of a bank failure. This makes the scheme less procyclical. Finally, in the case of ex-ante funding it is more effective to apply risk-differentiated premiums because they have a controlling influence in advance.
Structure of the fund
As of 1 July 2012, banks will build up a fund over a ten-year period of 1% of the deposits guaranteed under the DGS, amounting to around EUR 4 billion according to the most recent data. Each quarter, banks will pay a basic contribution of 2.5 basis points (0.025%) of the guaranteed deposits held at each bank. Moreover, banks will pay a risk margin of 0% (lowest risk category) to 100% (highest risk category) of the basic contribution.
The Ministry of Finance and DNB have drawn up a paper describing the technical design of the ex-ante funded DGS with risk-differentiated premiums. The reform will be effected through an amendment to the Decree on Special Prudential Measures, Investor Compensation and Deposit Guarantees pursuant to the Act on Financial Supervision. The draft amendment to said Decree, and the paper, can be viewed on the website below. Both documents are only available in Dutch. Interested parties should send their reaction to this Order in Council to the Ministry of Finance by 12 September 2011. Reactions to the reporting format should be submitted to DNB at the specially opened e-mail address email@example.com.