Bank deposit insurance. How it works and when the payout starts

Money in banks, building societies a credit unions are insured by law. When the bank where you have your accounts goes bankrupt, you get your money from the Deposit Insurance Fund. He administers by law Financial market guarantee system (GSFT).

The Czech deposit insurance system also includes Sberbank CZ, because it has its registered office in the Czech Republic and a license issued by the Czech National Bank. Payment from the system deposit insurance would come to the fore if Sberbank CZ would not be officially able to meet its obligations – ie to pay deposits to clients. According to the CNB on Monday, the regulator is close to this initiated proceedings to revoke the license.

Recall how the Deposit Guarantee Scheme works.

What is the limit of deposit insurance

Clients do not have to worry about deposits up to the limit of 100 thousand euros (according to the current exchange rate of less than 2.5 million crowns) – they would receive 100% compensation for them, including any interest.

All deposits of one depositor at common i savings accounts or term deposits. The insurance also covers accounts that are (in the Czech bank) maintained in foreign currency.

For each bank, the limit is assessed separately: if two banks go bankrupt at the same time and the client had 90,000 euros in each of them, he would receive 180,000 from the fund.

The limit in euros is converted to crowns according to exchange rate of the Czech National Bank on the day on which the central bank notifies the guarantee scheme that it is to commence the payment of deposit refunds.

The basic limit of 100,000 applies from 2011 in all countries of the European Union. Already in 2008, the 10% co-participation of clients was canceled and the insurance limit then rose from the original 25 to 50 thousand euros.

When the limit is doubled

In some cases, the limit will double. The aim is to increase the security of clients who deposit a higher amount in the bank related to a “change in the social situation”. These include money from the sale of real estate used for private housing, the payment of a one-off compensation from a state-contributed retirement savings, the settlement of the spouses’ joint property in a divorce, and insurance benefits in the event of accident, illness, disability or death. It is also money from inheritance and severance pay or employment from compensation for damage caused by a crime.

If the money from these life situations came to the account no later than three months before the bank or bank failure, then they are covered by insurance up to 200,000 euros, ie less than five million crowns. GSFT must request their payment within two months of the CNB’s notification of the bank’s bankruptcy.

“Such an amount must be credited to the account directly in connection with the given life situation. For example, in the case of payment of the purchase price for housing, it must be an amount that was credited to the account directly by the buyer or intermediary / custodian in accordance with the purchase contract. Deposits are always insured until the first disposition is made – if they are transferred, for example, from a current to a term account, the depositor loses the right to their extraordinary protection, “points out Renáta Kadlecová, CEO of GSFT.

Does deposit insurance also cover entrepreneurs and companies?

Yes. Deposits of both citizens (natural persons) and companies (legal entities) kept in banks, building societies or credit unions domiciled in the Czech Republic are insured.

Municipal or regional deposits are insured only if they are entitled to tax revenues or shares in them (according to the law governing the budget determination of taxes), while their tax revenues do not exceed the amount of 500 thousand euros, and if they meet other conditions stipulated by law.

What deposits in the bank are insured

Statutory deposit insurance applies to current and savings accounts, term deposits, passbooks and building savings, including accrued interest. It does not apply, for example, to supplementary pension insurance and supplementary pension savings or to investments (mutual funds, etc.).

When will the payout from the Deposit Insurance Fund begin?

Payment (up to a basic limit of EUR 100,000) must begin within seven working days of the Czech National Bank notifying itself that the financial institution is unable to meet its obligations (or of a bankruptcy court decision or other decision). for reasons directly related to the financial situation of the financial institution, which results in the suspension of the right of depositors to dispose of deposits covered by the insurance).

The client does not have to formally request the payment of the basic compensation. All you have to do is come with an identity card to the bank’s branch that will be in charge of the payment – the guarantee system currently has a contract with Komerční banka. However, a possible payment of the increased compensation (double limit) must be requested within two months of the notification of the bank failure.

Compensation payments are made for a period of three years from the date of their commencement. Payment can be made by bank transfer, but also in cash.

How much money is in the Deposit Insurance Fund?

According to the latest information, 35 billion crowns are available in the Deposit Insurance Fund. These are regular mandatory contributions from insured institutions.

The financial market guarantee system can also use additional sources of financing. The first is the announcement of extraordinary contributions from banks, building societies and credit unions. “As another source, we have a bond program. We would contact the banks with an offer to subscribe for our bonds, “says Kadlecová. Other sources are loans from the European Union’s partner guarantee schemes and, finally, possible help from the state budget.

Another 21 billion crowns is in the Crisis Resolution Fund. “It is not used for direct deposit compensation payments. The funds accumulated in it can be used in the event of a threat to the stability of one of the financial institutions if other legal conditions are met, “the GSFT website writes. The word may come during the restructuring of the bank. “For example, the CNB can divide the bank into a healthy part managing insured deposits and a part that would be liquidated. The healthy part would be recapitalized in combination with other CNB measures and possible use from the money in the fund and subsequently sold to another owner, ”explains Kadlecová.

If we look at the current case of Sberbank CZ: according to the latest statistics, deposits reached almost 75 billion crowns at the end of last September, of which 32 billion belong to households, SVJs and non-profit institutions serving households, 26.5 billion to non-financial corporations and 11.9 billion to governmental or other international institutions. The volume of loans provided by the bank and receivables reached 79.6 billion.

Bank failures in the past

Historically, the largest payout of deposits came after the collapse of Union Bank in 2003, with compensation reaching 12.4 billion crowns. Almost 12 billion crowns were then paid to the clients of the Metropolitan Savings Cooperative (since January 2014). The third place in terms of the size of compensation is the bankruptcy of Moravia banka in 1999, which paid over six billion to its clients.

So far, the last financial institution whose clients had to be paid by the Deposit Insurance Fund has been the Czechoslovak Credit Cooperative since August 2021 – the amount of the payout is only 50 million crowns. So far, the last bank was ERB Bank (formerly the European-Russian Bank) – during the 2016 crash, it had deposits of around 3.5 billion crowns.

The most well-known case of compulsory administration is the Investment and Postal Bank (IPB): In June 2000, clients undertook a so-called bank run, ie a massive withdrawal of deposits. The CNB eventually appointed a forced administrator to IPB and, after three days, decided to sell to the Czechoslovak Commercial Bank (ČSOB), so that a payment from deposit insurance was not necessary at the time.