Voluntary engagement, for preventive
Fonds de Garantie des Dépôts may also be engaged with a credit
institution for which there is a risk that it will be unable to repay
deposits or other funds in the future in view of the resources and
assistance available to it (article
312-5 of the Code monétaire et financier).
Similar procedures are established for the securities guarantee mechanism
(article L 322-2of the
Code monétaire et financier, which requires inter alia the
recommendations of the Conseil des marchés financiers (French
financial services authority) and procedures for warranties (article L 313-50 of the Code monétaire et
type of engagement is subject to a recommendation from the French banking
commission. However, the Fonds de Garantie des Dépôts is entitled
to accept or to reject an engagement. If it accepts an engagement, it
shall define the terms and conditions of its engagement, after seeking
the recommendations of the French banking commission. For example, by law
its engagement may consist of " the total or partial sale of a credit
institution or the closing down of its activities, notably by sale of its
business ". It may also purchase shares in a credit institution or,
with the approval of the headquarters of a network, shares of an
affiliated company to this institution.
objective of any engagement - as emphasised by the draft texts to the Act
- is to " avoid a situation where a credit institution can continue to
trade in competition with other institutions while its survival depends
on the support of other institutions ".
should be noted that a preventive engagement represents a financial
support granted to the credit institution, such that all customers
benefit from the engagement, which is unlimited in scope and amount.
There is therefore a fundamental difference from a default engagement,
which is limited to compensating the depositors. The decision to
undertake the preventive engagement is taken by the Supervisory Board of
the Fonds de Garantie des Dépôts following a report submitted by
the Management Board. The Management Board may engage auditors, if it
considers this necessary for the preparation of its report.