The FGDR can intervene on a preventative basis to allow the orderly discontinuation or restructuring of a troubled institution before it goes bankrupt. In this case, the FGDR finances asset restructuring or transfer measures aimed at protecting customers’ assets.
The FGDR is authorised to intervene in this manner for each of the guarantee mechanisms it manages: in a bank for the deposit guarantee scheme, in an investment services provider for the investor compensation scheme, and in an issuing financial institution for the performance bonds guarantee scheme.
What are the effects of a “preventive” intervention?
By intervening, when possible, before a suspension of payments occurs or customers’ assets become unavailable, the FGDR prevents an interruption in customer services and compensation, which would prove disruptive for customers and is often more costly.
This method of intervention was used when the last bank failure occurred in France, that of Crédit Martiniquais in 1999, and when Dubus SA, an investment services provider, failed in 2013. In both cases, thanks to the FGDR's intervention, no customers sustained losses as a result of these failures.
The FGDR’s role in a preventive intervention
The FGDR's preventive intervention is initiated by the Prudential Supervision and Resolution Authority (ACPR ) when an institution is found to be in difficulty. The FGDR reviews the case and decides whether or not to intervene, the alternative generally being the outright failure of the institution and the initiation of a compensation process under one of the three guarantee schemes, depending on the case.
If it agrees to intervene, the FGDR, together with the ACPR, defines the terms of its intervention (provision of liquidity, guarantees, recapitalisation, etc.) and the necessary considerations (sale of a business portfolio, transfer of the business, surrender of rights, discontinuation of the business, etc.). The ACPR, for its part, may use its own powers to ensure compliance with the approved plan.
The terms of a preventive intervention
A preventive intervention is an operation that generally involves the financial restructuring of the troubled institution itself by the FGDR through capital or guarantees. The FGDR may, in particular:
- subscribe to an increase in the troubled institution’s capital or acquire a stake in the institution;
- guarantee some or all of its assets or liabilities or acquire some of its assets;
- grant financing to it;
- provide capital or a guarantee to a bridge institution that takes over some or all of the failed institution's operations.