Depositor protection: An EC law perspective

Misita, Nevenko
March 2003
Journal of International Banking Regulation;Mar2003, Vol. 4 Issue 3, p254
Academic Journal
Financial institutions, particularly banks, are exposed to 'runs'--a mass withdrawal of money-deposits by depositors faced by a (perceived) threat of a bank insolvency. However, due to the interdependence of credit institutions, the collapse of one bank may represent a real threat to the financial system as a whole. According to many, the right answer to this risk implies strong prudential supervision of financial institutions and effective deposit protection schemes. As far as the EC context is concerned the Commission tackled the issue in the mid-1980s, and in 1986 it issued a Recommendation on deposit guarantee schemes, which proved a rather unsuccessful soft-law instrument. Later, the Commission turned to a more binding and comprehensive legal tool and submitted a proposal for a directive on deposit-guarantee schemes, which was adopted in 1994 Directive 94/19/EEC. The present paper focuses on the issue of depositor protection in terms of this Directive. Specific attention is devoted to the Directive's aim and scope, its conceptual structure from a consumer (protection) point of view, and in particular the issue of minimum cover, payout and information requirements. In addition, the notion of 'moral hazard' and the issue of state guarantee is addressed, in order to further contextualise the main subject matter. The paper concludes with several remarks concerning the pros and cons as to the establishment of deposit protection schemes.


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