Deposit guarantee scheme
Protection for customers and the entire banking system
When a bank is no longer able to repay its customers' deposits, the Fonds de Garantie des Dépôts et de Résolution (FGDR) compensates customers in an amount up to €100,000 within 7 working days subject to certain conditions and limits. By protecting depositors, the deposit guarantee scheme helps to maintain confidence in the banking system and ensure its stability.
The "DGSD2" directive adopted on 16 April 2014 (2014/49/EU), which was transposed into French law at the end of 2015 and includes 5 implementing decrees of 27 October 2015, introduced several significant improvements for depositors:
- expansion of the guarantee to include all deposits and all European and non-European currencies;
- reduction of the compensation period to 7 working days instead of 20 days as of 1 June 2016;
- creation of an increase in the coverage level for "temporary extraordinary deposits";
- new obligations of institutions regarding the notification of depositors.
- Protection of "temporary extraordinary deposits": the deposit guarantee scheme now covers amounts that were received less than three months prior to the institution's failure and which come from:
1/ the sale of residential property belonging to you;
2/ a lump-sum payment of compensation for harm sustained by you;
3/ a lump-sum payment of a retirement benefit, an estate, a bequest or a donation;
4/ a compensatory benefit or a settlement or contractual indemnity following the termination of an employment contract.
The €100,000 coverage level is increased by an additional €500,000 for each of the above events, except for the compensation of bodily injury, for which there is no limit. To exercise their rights, customers must write to the FGDR within two months of receiving their initial compensation and provide the necessary supporting documents.
New information to be provided by the banking institutions :
Starting in 2016, banks must provide a fact sheet describing the deposit guarantee scheme to anyone wishing to open an account covered by the scheme. If the account is opened, the customer will then be asked to sign an acknowledgement of receipt of the fact sheet. The banks provide this sheet once a year to each of the customers concerned. At the same time, the banks will henceforth refer in periodic statements to coverage by the deposit guarantee for the accounts concerned. These regulations increase the information for customers on the deposit guarantee scheme in the event of a bank failing.
Why was the deposit guarantee scheme established?
The savings entrusted to a bank remain due and payable to the customer; in other words, the customer holds a claim against the bank and the bank must be able to reimburse the customer.
When a bank is no longer able to return these savings to its customers, the ACPR (Autorité de Contrôle Prudentiel et de Résolution) notes the bank's failure and contacts the FGDR. The FGDR then compensates the customers up to an amount of €100,000 per customer, per institution within 7 working days.
The deposit guarantee scheme has two important effects:
- firstly, it prevents depositors from facing financial difficulties due to the unavailability of their assets in the case of their bank's failure;
- secondly, by strengthening confidence in the system, it prevents the spread of failures from one bank to another.
When the FGDR intervenes to compensate customers, it replaces the customers as the bank’s creditor in the amounts paid by it.
Deposit guarantee: about 404 institutions covered
All banks and credit institutions operating in France are covered by the deposit guarantee scheme. Membership in this scheme is a prerequisite for conducting their business in France.
€100,000 guaranteed per customer and per institution, within a 7-day time limit
All deposits covered by the guarantee are added up to determine the amount which the bank owes its customer. The FGDR pays compensation in this amount, up to €100,000 per person, per institution, within 7 working days.
Moreover, all sums deposited in savings accounts guaranteed by the French government (Livret type 'A' savings account and Livret Bleu savings account, Livret Développement Durable (LDD) savings account and Livret d’Epargne Populaire (LEP) savings account) are covered, up to €100,000 per customer, per institution. The FGDR compensates customers at the request of and for the French Government.
What principles are used to calculate the compensation?
To determine each customer's compensation amount, the FGDR, as of the date on which the funds become available, receives each customer's account statement from the institution. The balance of each account includes the transactions completed by the customer and which could have been recorded on the date of availability, the deferred debits not yet posted resulting from payments by card and accrued interest not yet due which the bank owes its customer, net of social contributions.
On that basis, the FGDR:
- checks whether the bank's customer is covered by the deposit guarantee scheme;
- lists all the customer’s deposit accounts covered by the deposit guarantee scheme;
- identifies all savings accounts covered by a special French government scheme (Livret A, LDD and LEP);
- identifies joint accounts and calculates the portion accruing to each of the co-holders;
- where appropriate, makes a distinction between the customer's business accounts and personal accounts: if you have kept your personal assets separate from your business assets (one-person limited liability company (EURL) or limited liability individual business owner (EIRL)), you receive compensation separately for your personal accounts (up to €100,000) and your business accounts (up to €100,000);
- identifies undivided co-ownerships as a recipient separate from its members, and does the same for partnerships and for each of the beneficiaries of a multiple owners account;
- considers only accounts with a credit balance: accounts with a debit balance do not reduce credit balances, except for legal or contractual set-off;
- adds the portion of the joint accounts to the amount to be compensated under the deposit guarantee scheme;
- applies the €100,000 coverage level for the total of the deposit accounts at the same credit institution;
- identifies the compensation amount under the deposit guarantee scheme for the deposit accounts;
- identifies the compensation amount for deposit accounts guaranteed by the French government guarantee by adding up the amounts of accounts covered by the French government guarantee (Livret A and Livret Bleu savings accounts, LDD and LEP).
The FGDR prints 2 compensation statements:
- one for savings accounts guaranteed by the French government guarantee (Livret A, LDD, LEP),
- one for all other accounts covered by the deposit guarantee scheme.
Accounts with a debit balance are not offset by credit accounts and should be repaid to the bank's liquidator.
For non-compensated accounts exceeding the €100,000 limit, declared to the bank's liquidator, a claim may be filed with the bank's liquidator at a later date.
A deposit guarantee scheme that benefits all bank customers
As a general rule, all bank customers are covered by the deposit guarantee including:
- natural persons whether minors, adults under guardianship or represented by a third party;
- companies (limited companies (SA), limited liability companies (SARL), one-person limited liability companies (EURL), ... of any size, regardless of their status;
- associations and other professional groups, non-trading partnerships, foundations and groups of any kind;
- public institutions, local governments and their own institutions.
The scope of this coverage is designed to strengthen the public’s confidence in the banking system to the greatest extent possible. This is consistent with the goal of preserving financial stability.
However, the laws and regulations provide for certain exceptions and special cases.
Exceptions: what customers are excluded from the deposit guarantee scheme?
Those not covered by the deposit guarantee scheme include:
- central governments and administrations, supranational institutions;
- all companies and organisations in the financial sector, particulary banks and credit institutions, investment firms, mutual funds (UCITS), pension institutions, pension funds and other financial institutions (with the exception of funds they hold on behalf of third parties in dedicated accounts);
- insurance companies.
A guarantee that covers all bank deposit deposits
All amounts deposited at a bank in current accounts and savings accounts are covered by the deposit guarantee scheme regardless of the currency in which the accounts are denominated.
This applies regardless of the contractual or commercial name of the current or savings account into which the deposit is made:
- current account, demand account, savings passbook account, term account, savings passbook account and plan, Compte d’Epargne-Logement (CEL) savings account, Plan d’Epargne-Logement (PEL) savings plan, Plan d’Epargne Populaire (PEP) savings plan;
- Livret Jeune savings account;
- cash account associated with an equity savings scheme (PEA), a pension savings scheme (PER) or equivalent held at an FGDR affiliated institution;
- bank cheque issued and not cashed;
- current or savings accounts that may combine various products from the above list;
- deposits given as collateral, such as to guarantee loan or financial market transactions, once they have become payable, i.e. when the transaction covered by the deposit has been settled (since the guarantee deposit is no longer applicable, it must be returned to the customer).
In addition, all amounts deposited in savings accounts guaranteed by the French government are covered up to an amount of €100,000 per customer, per institution:
- Livret type 'A' savings account (and Livret Bleu savings account);
- Livret Développement Durable (LDD) savings account; and
- Livret d’Epargne Populaire (LEP) savings account.
The FGDR compensates customers on behalf of the French government.
Products not covered by the deposit guarantee scheme:
The deposit guarantee scheme does not cover:
- anonymous deposits or non-registered financial instruments, or whose holder cannot be identified;
- banknotes, coins and objet entrusted to your bank's safety box service;
- life insurance policies, capitalisation contracts with an insurance company;
- collective pension savings schemes (PERCO), intercompany collective pension savings schemes (PERCO-I), company pension savings schemes (PERE);
- company and inter-company savings schemes (PEE, PEI);
- electronic-based cash and payment cards issued by a payment institution or an electronic money institutions, (Monéo type, or Compte Nickel type, and similar);
- funds collected or held by payment institutions or electronic money institutions in return for the cards or other payment methods issued by them;
- deposits of equity;
- cash vouchers.
Securities and other financial instruments (stocks, bonds, units of UCITS, certificates of deposit, negotiable debt instruments, etc.) which are covered by the FGDR's investor compensation scheme.
In what currency must the account be denominated in order to be protected by the deposit guarantee?
All current and savings accounts included in the scope of the deposit guarantee scheme are covered regardless of the currency in which they are denominated.
Article L.312-4-1 of the Monetary and Financial Code stipulates that all currencies are eligible for compensation.
How is compensation paid on a business owner's business accounts?
Individual business owners (craftsmen, merchants, self-employed professionals, etc.) sometimes use bank accounts for business purposes which are separate from their personal accounts.
If a business owner conducts business through a separate legal entity, such as a one-person limited company (EURL), or under the status of a limited liability individual business owner (EIRL), a second €100,000 ceiling is made available to compensate his/her personal accounts and a guarantee of up to €100,000 to compensate his/her business accounts.
Otherwise, a single coverage level of €100,000 applies for all the business owner's personal and business accounts.
How does the deposit guarantee work for a tenants-in-common account or a partners' account?
An "tenants-in-common account" is an account that belongs collectively to a group of people (called indivision or undivided co-ownership), none of whom may act independently of the others or claim ownership of a portion of the account so long as the indivision exists.
Three examples of tenants-in-common accounts are:
- an account of a deceased person before the notary has settled the estate and the amounts have been shared among the heirs;
- an account in which several people have formed a partnership for a common purpose, but without giving this partnership a specific legal form, and which requires the mutual agreement of the joint owners for all transactions;
- an account created in this form by two people which requires both their signatures for all transactions and where the name of the account includes the words "person A and person B".
In all cases, the guarantee covers the indivision and not the portion belonging to each of its individual members.
Moreover, account holders who have rights as partners of a company, members of an association or any similar group and who are not legal entities (for example, undeclared partnerships and similar groups) are treated as separate depositors. They therefore benefit from a collective coverage level of €100,000 for the accounts in question, in addition to the ceiling applicable to them individually.
How are deposits guaranteed when the account holder is not the person entitled to them?
When the account holder is not the person entitled to the deposits (for example, multiple owners accounts opened by a professional – real estate agent, attorney, management agent, etc. – for depositing sums received from clients for payments to third parties), the account holder is not covered by the guarantee. The deposit guarantee benefits the individuals entitled to the funds (home buyer, attorney's client, co-owner, etc.), each of whom has a ceiling of €100,000, provided these individuals are identifiable prior to the bank's failure.
How does the deposit guarantee work for a joint-tenants account?
Each co-holder of a joint-tenants account (or joint account) is eligible individually for a coverage level of €100,000.
Unless otherwise specified in the account agreement, a joint account is shared equally amount the co-account holders.
The compensation paid to each joint holder is the sum of the amount of his/her personal deposit accounts and his/her portion of the joint account, up to a total of €100,000 per customer.
- Person A has a personal account with a credit balance of €5,000 and person B has a personal account with a credit balance of €9,000. Together they have a joint account with a credit balance of €3,000.
- The compensation amount for which person A is eligible is: €5,000 + one half of €3,000 = €6,500;
- The compensation amount for which person B is eligible is: €9,000 + one half of €3,000 = €10,500.
The name of a joint account generally includes the words "Person A or Person B" and the account can be opened for more than two people.