How the new 100% compensation scheme works

Brendan Burgess

Brendan Burgess

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The minister's announcement

From www.itsyourmoney.ie

The Deposit Protection Scheme covers:

  • current accounts;
  • demand deposit accounts;
  • term deposit accounts;
  • share accounts with building societies; and
  • share accounts and deposit acounts with credit unions
held with banks, building societies and credit unions. Ask your bank, buiding society or credit union to confirm that your account is one of those listed above.
Some banks that operate in Ireland are regulated in their home country and operate here under EU rules. These banks include Danske trading as National Irish Bank, which is part of the Danish Guarantee Fund for Depositors and Investors, Northern Rock, which is currently under guarantee arrangements with the Bank of England and HM Treasury and Rabobank, which is part of the Dutch Deposit Guarantee Scheme.
Who can claim under the scheme?

  • Personal customers
  • Sole traders and small businesses
  • Partnerships
  • Trusts
  • Small companies
  • Charities
  • Voluntary organisations
  • Accounts held in trust by solicitors (such as for personal injury awards)
How much can I claim?
The maximum amount you can get under the scheme is €100,000 for each bank, building society or credit union we regulate. This means that even if you have an amount greater than €100,000 in deposits with an instituion - for example €110,000 - you will only be entitled to a maximum of €100,000.
If you have deposits with more than one institution, you are entitled to claim up to the maximum compensation payment, per institution
 
Does the new scheme cover accrued interest?

Say I have a fixed term account, the interest is calculated daily on the previous balance plus previous interest, so if the institution goes bust, what gets paid back?
- the capital
- the capital plus accrued interest

Anyone know?
 
One important point which is often glossed-over are the practical arrangements for getting your money returned in the event that the institution needs to call on the compensation scheme.

The details of how this will be managed need to be clearly described, ideally with a defined time-limit for refunds.

Your money may be guaranteed ultimately, but in many cases you might have to wait an undefined amount of time (3-6 months maybe) which could cause immense practical difficulties in the short term. During the last 'run' on NR, I was trying unsuccessfully to withdraw some of my money for a number of days - not to reinvest, but to spend on a particular item.

For me, the consequence of this is that it still makes sense to spread deposits among a number (at least two, anyway) of institutions to try and reduce the impact of any short-medium term difficulties.
 
Why does the blurb only mention current accounts, demand deposit accounts and term deposit accounts. What about savings accounts?!
Am I missing something here?
 
A savings account must either be a demand deposit account or a term deposit account.

All such accounts are covered.
 
I assume that the compensation scheme covers non-Euro accounts held in Irish banks - i.e. those in sterling, dollars, etc? Can anyone confirm?
 
Lads - forget NR.

Deal with the original question. How long will it take a depositor to get their money in the event of a collapse?

Brendan
 
It will be interesting to see exactly how this will work with CUs. For a start most CUs do not allow members to have anywhere near 100k on deposit. I think the limit on my local one is about 30k. Then they also have their own limited guarantee. Will this be rolled into the main banks guarantee fund? Why should the government handle the odd rogue badly managed CU? Or is the government thinking of a big bang affecting many CUs? Don’t forget that CUs in return just have their money on deposit in which ever bank is currently giving the best rate. No different than you or I opening up an account in that bank. So if NR had gone bust it would have devastated a very large number of Irish CUs. This may be what the government is trying to protect against?
 
It appears all that is being changed under the existing scheme is the amount ie €100k.

Just how credit unions are to be legally covered remains to be seen as they are specifically excluded in legilsation governing the Irish DGS. The Department has indicated its intention is for the guarantee to act as a backstop to a reformed ILCU SPS.

Under US law, depositors can access their funds within 48 hours. UK authorities have highlighted access as an important element and are considering granting access within 7 days.

Here in Ireland Central Bank provisions provide for payment to depositors within 3 months extendable by upwards of 3 three month intervals.

4) Subject to paragraph (5), the Bank shall be in a position to pay duly verified claims by depositors in respect of eligible unavailable deposits within three months of the date on which the Bank made a determination or the court made a ruling under Regulation 9.

(5) In wholly exceptional circumstances and in special cases the Bank may provide for up to three extensions of the time limit in paragraph (4), each of which extensions shall not exceed three months.

http://www.irishstatutebook.ie/1995/en/si/0168.html

 
Did anyone find an answer to Brendan's question from yesterday in relation to the fund running out of money?
I heard that the fund has €530m at the moment. Not too much practice with lots of zeros but this would seem to cover only 5300 depositors @ €100,000 each!
 
The scheme has what is called reconstitution provisions. This allows it to be replenished should it run out of money. What this means is its members are called on to make further deposits (contributions) over time. Before this happens it seems the scheme manager, the CBI, would provide the funds for paying compensation to qualifying depositors.

The low balance is quite common in the design of deposit insurance schemes. There are typically two approaches. The first looks (ex-ante)to build a large fund but the costs are higher as the contribution levels are c1.2-2% of banks deposits - sometimes even higher. The alternative (ex-post) is to create a smaller fund with a call on banks should it run out of money.
 
Does anyone know what "small businesses" means in this context? itsyourmoney.ie doesn't bother to define (that I can find).
 
Is the new deposit compensation scheme (cover for €100,000 max) actually operative yet? I understood that, while it would be backdated to the day of the announcement, the legislation for it would have to be passed first.

Considering that the banks up to a couple of weeks ago were saying they couldn't afford to have the cover raised, how can we be sure that they won't lobby to have the maximum reduced before the legislation date?
 
The scheme came into effect immediately when announced on the 20th September as far as I know.
 
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