The turmoil in the banking sector in recent weeks, with the fall of various entities in the US and the sale of Credit Suisse, have once again focused attention on customer savings. More precisely in deposit guarantee funds. They are the mechanism that ensures user funds in the event of a fall or intervention and have gained relevance among voices to complete the banking union.
With a base of 250,000 dollars in the US case, how much money are we talking about in the Spanish Deposit Guarantee Fund (FGD)? In general terms they are 100,000 euros per deposit, holder and entity. That is, in the event that the entity goes bankrupt, the deposits and certain products of individuals do not remain at 0. They are compensated for the amount they had up to those 100,000 euros.
By way of example, if there were 30,000 euros in the current account at the time of the collapse, 30,000 are guaranteed. If you had 120,000, 20,000 would be lost a priori. “When an entity goes bankrupt, the losses are assumed first by the shareholders and creditors. It is difficult for depositors to assume losses. But above 100,000 euros, it would be possible,” warns Joaquin Maudos, deputy director of the Ivie and professor at the University of Valencia .
The fund insures on two legs: money deposits -current account, term- and securities and other instruments that the bank guards. “In both cases, the insured amount is 100,000 euros per entity and owner,” says Maudos. “The two insurances are compatible, that is, 100,000 for a money deposit and 100,000 more for securities deposits.”
With another example, someone with 100,000 euros in the current account and 40,000 in a term deposit, only 100,000 is guaranteed together, because they are from the same group of assets. If there were 100,000 in the checking account and 40,000 in securities, they would be fully covered. If they are in foreign currency, it is calculated on the equivalent with the current exchange rate.
One option is to divide the savings into various accounts and banks, so that none exceed 100,000 euros and lose protection. For example, if we have funds of 140,000 euros, divide it equally into 70,000 euros in two entities. “In order to have 100% insured money in a bank, the limit of 100,000 per holder should not be crossed,” recommends Maudos. The reference figure was defined when it was verified that “90%-95% of bank deposits are less than that figure”, comments Emilio González, professor of Economics at Comillas-Icade.
What about the rest of the products? The pension fund is on the sidelines. “It is an institution with its own legal personality, it is not affected,” says González. “If the entity goes bankrupt, the saver should not worry, the bank is not the owner of that fund. If the manager went bankrupt, another entity would take over the client’s funds under the supervision of the Ministry of Economy,” says Maudos.
With regard to investment funds, there is its own institution that insures up to 100,000 per investor and entity, the Investment Guarantee Fund (Fogain).
With its existence, the Deposit Guarantee Fund “avoids a bank panic, running to get money out of the bank out of fear, which generates a liquidity crisis. The fund gives people confidence that even in a bank failure they will to recover their money. Everyone would take the money from the bank if one falls and we see that the deposits are not recovered,” argues González.
The Fund is being covered with contributions from the entities themselves, including all the large ones and another hundred more, although “public money could come in” in necessary cases, says González. At the end of 2022, it had 6,609 million euros in available resources. Additionally, it has other forms of financing such as “spills to be made between member entities, other resources raised in the stock markets, loans -currently with a bank financing line of 4,000 million- or any other debt operations”, sources from the Background. Its legal basis “provides that it carry out as many actions as are necessary to restore its assets with the aim of guaranteeing the depositors of the entities the amounts deposited,” they add.
A proposal such as taking protection from 100,000 to 250,000 euros, as in the US (up to 250,000 dollars are guaranteed), “would mean a clear extra cost for the banks, since they pay a premium proportional to the deposits covered. It would be an intense increase in the cost to be paid that the banks would end up transferring to the clients”, warns Maudos.
There are some cases in which it is contemplated to exceed the limit of 100,000 euros. For example, on amounts that are compensation for dismissal, for divorce, death, for the collection of a coup pension and certain exceptional situations -home sale- that are fully protected. There is fine print. It is “for a period of three months from the moment the amount has been paid or from the date on which said deposits have become legally transferable”, the Fund collects on its website.
At present, the EU countries have their own fund. For this reason, after the banking crisis in the US due to the flight of deposits, it is requested to advance in the concretion of the banking union. Specifically, with a European guarantee fund. “All clients would feel equally protected regardless of the country where their money is deposited. This would improve financial stability, which is essential for economic growth,” says Maudos. “It would give a greater sense of security. We have common supervision, a common banking authority, but not a common deposit guarantee fund…”, they recall from Icade.