Response to consultation on draft Guidelines on the delineation and reporting of available financial means of DGS
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The EBA is proposing to delineate available financial means (AFM) in future into qualifying available financial means (QAFM) and other available financial means.
a) QAFM: Funds stemming come directly or indirectly from contributions of DGS member insti-tutions, which qualify towards reaching the target level of the DGS fund.
b) Other AFM: Funds, which are not QAFM, including borrowed funds that stem from liabilities such as loans, and hence do not count towards reaching the target level of the DGS fund, as well as funds and therefore not intended to achieve the target volume, as well as funds that are subject to an obligation of the DGS to repay them.
The definition of AFM (in future QAFM) shown above is not an obstacle to the EBA’s new interpretation. The GBIC supports the proposal that, in future, borrowed funds, (extraordinary) contributions with a repayment obligation as well as funds whose origin cannot be tracked will no longer count as (quali-fied) available financial means. The procedure proposed by the EBA is consistent with current practice in the German banking industry and will contribute to harmonising and stabilising the calculation of AFM in Europe.
The EBA’s proposal to allocate recoveries to QAFM and other AFM according to their share of the fi-nancing is indispensable for meeting the new definition of QAFM and will ensure that borrowed funds are excluded from funding the target level for DGS funds. An important consideration here is to en-sure that the standardised calculation methodology does not lead to an additional bureaucratic bur-den and the derivation of the recoveries in line with the origin of the funds cannot be distorted by individual specificities. The GBIC agrees with the allocation of recoveries described above.
If extraordinary contributions that are linked to potential repayment obligations are levied, these are levied individually in accordance with section 27(1) of the EinSiG and are thus used directly for the corresponding compensation event. Low-risk bond products approved by BaFin, as well as funds raised from other sources, are not used for investment purposes.
In the GBIC’s opinion, cases where income is generated from different sources are very rare and of minor importance. From GBIC’s perspective, the extra effort needed to additionally allocate invest-ment income to QAFM and other AFM cannot be justified, as the laborious differentiation of income does not result in any relevant information gain. The GBIC is therefore calling for all investment in-come as well as any losses to be attributed in full to QAFM in all cases.
The arguments advanced by the EBA in favour of extending the reporting and publications on the EBA website are designed to enhance information and certainty for depositors. However, it should there-fore be noted that both types of AFM serve to secure deposits.
The GBIC supports the results of the accompanying impact assessment of the draft guidelines re-garding the treatment of unclaimed repayments. The results of the impact assessment should also apply to reporting unclaimed repayments. As it is not possible to identify the impact of the total amount of unclaimed repayments on the available means, reporting unclaimed repayments also does not add any value to the information gain for depositors.
In this respect, the GBIC supports revising paragraph 26 of the guidelines as well as paragraph 47 of the consultation paper, according to which DGSs should report unclaimed repayments to the EBA. This reporting does not deliver any added value, except in the very specific case that a compensation event occurs shortly before the reporting date. By contrast, it means considerable effort for the DGS, since insolvency proceedings can sometimes drag on for years, and repayments not claimed by the date they become time-barred would still have to be reported although this would not have any sig-nificant impact on the available financial means. On the contrary, experience shows that no further repayments are claimed by depositors more a few weeks after the occurrence of a compensation event. In the vast majority of cases, the remaining repayment claims are not asserted by the benefi-ciary, even at a later date.
Question 1: Do you agree with the proposals for the criteria that QAFM should fulfil, i.e. on the exclusion of borrowed resources, the exclusion of contributions from QAFM that contain an obligation to be repaid upon receiving recoveries and keeping track of the origin of funds, as outlined in section 4.1 and 4.4 of the guidelines?
Up to now, under Article 2(2) and (12) of EU Directive 2019/49, available financial means means “cash, deposits and low-risk assets which can be liquidated within a period not exceeding that re-ferred to in Article 8(1) and payment commitments up to the limit set out in Article 10(3)”. Under section 18(2) of the German Deposit Guarantee Act (EinSiG), payment obligations may also be includ-ed if they meet the statutory requirements and their share does not exceed 30% of the available financial means. Loans maturing after the period for compensation in accordance with section 14 of the EinSiG (to be calculated from the balance sheet date) do not qualify as available financial means.The EBA is proposing to delineate available financial means (AFM) in future into qualifying available financial means (QAFM) and other available financial means.
a) QAFM: Funds stemming come directly or indirectly from contributions of DGS member insti-tutions, which qualify towards reaching the target level of the DGS fund.
b) Other AFM: Funds, which are not QAFM, including borrowed funds that stem from liabilities such as loans, and hence do not count towards reaching the target level of the DGS fund, as well as funds and therefore not intended to achieve the target volume, as well as funds that are subject to an obligation of the DGS to repay them.
The definition of AFM (in future QAFM) shown above is not an obstacle to the EBA’s new interpretation. The GBIC supports the proposal that, in future, borrowed funds, (extraordinary) contributions with a repayment obligation as well as funds whose origin cannot be tracked will no longer count as (quali-fied) available financial means. The procedure proposed by the EBA is consistent with current practice in the German banking industry and will contribute to harmonising and stabilising the calculation of AFM in Europe.
Question 2: Do you agree with the proposed approach to allocate recoveries to QAFM and other AFM, as outlined in section 4.2 of the guidelines?
To meet the new definition of QAFM, in addition to the delineation of available financial means, the EBA is also proposing to allocate recoveries to QAFM or other AFM according to their share of the financing. If there are recoveries from a previous resolution or recovery claim or from preventive and alternative measures according to Article 11(3) and (6) of the DSGD, they can only be attributed to QAFM if they were also fully financed using QAFM. If this is not the case, the DGS should allocate the recoveries to the QAFM and the other AFM in proportion to their share of the financing in the entire disbursement event. If additional transactions have been made using QAFM after the initial disbursement of funds and receipt of recoveries, e.g. repayment of a loan, these transactions should be taken into account when determining the proportion of recoveries allocated to QAFM and other AFM. In addition, DGSs should not allocate more recoveries to other AFM than are necessary to repay outstanding and future liabilities, including foreseeable interest payments. Any residual recoveries should be allocated to QAFM.The EBA’s proposal to allocate recoveries to QAFM and other AFM according to their share of the fi-nancing is indispensable for meeting the new definition of QAFM and will ensure that borrowed funds are excluded from funding the target level for DGS funds. An important consideration here is to en-sure that the standardised calculation methodology does not lead to an additional bureaucratic bur-den and the derivation of the recoveries in line with the origin of the funds cannot be distorted by individual specificities. The GBIC agrees with the allocation of recoveries described above.
Question 3: In your view, is the alternative approach or any other approach to allocating recoveries better, with particular focus on the method’s a) suitability to respect the principles of QAFM set out in section 4.1 and 4.4 of the guidelines, b) and simplicity of application?
We have no objections to options 3 or 4.Question 4: Do you agree with the proposal that the treatment of administrative fees relative to QAFM does not need to be specified?
The EBA holds the view that the administrative fees collected by DGSs from their member institutions do not play a role in reaching the target level of available financial means. The GBIC shares this view and does not see any need to specify administrative fees because of their marginal importance in the composition of DGSs’ available financial means. Instead, the German implementation of the DGSD sets out an option for income from the investment of funds to be used to cover the administrative costs of the deposit guarantee scheme in accordance with section 18(4) of the EinSiG. This unre-stricted use of income should be allowed to continue. The type of AFM from which the investment income results must not play a role.Question 5: Do you agree with the treatment of investment income relative to QAFM as proposed in section 4.3 of the guidelines?
The funding of DGSs, under which Article 10(2) of the DGSD sets out that a required target level of 0.8% of covered deposits must be reached by 3 July 2024, is ensured in Germany by section 19(1) of the EinSiG. Moreover, German legislation already stipulates in section 18(1) of the EinSiG that only cash, deposits and low-risk assets can be treated as available financial means. This would correspond to the definition of QAFM. It means that income from investing funds in Germany can only be allocat-ed to funds defined as QAFM.If extraordinary contributions that are linked to potential repayment obligations are levied, these are levied individually in accordance with section 27(1) of the EinSiG and are thus used directly for the corresponding compensation event. Low-risk bond products approved by BaFin, as well as funds raised from other sources, are not used for investment purposes.
In the GBIC’s opinion, cases where income is generated from different sources are very rare and of minor importance. From GBIC’s perspective, the extra effort needed to additionally allocate invest-ment income to QAFM and other AFM cannot be justified, as the laborious differentiation of income does not result in any relevant information gain. The GBIC is therefore calling for all investment in-come as well as any losses to be attributed in full to QAFM in all cases.
Question 6: Do you agree with the proposed treatment of unclaimed repayments with regard to AFM?
The GBIC supports the results of the accompanying impact assessment of the draft guidelines re-garding the treatment of unclaimed repayments. The GBIC therefore considers it to be desirable for the EBA to exclude the treatment of unclaimed repayments from the scope of these guidelines.Question 7: Do you agree with the proposed reporting of a) outstanding liabilities that have been incurred for the purpose of a DGS intervention, b) alternative financing arrangements and c) unclaimed repayments to the EBA and the publication of this information by the EBA as presented in section 4.4 of the guidelines?
If the available financial means will be defined in greater detail and this leads to a delineation between qualified available financial means (QAFM) and other financial means, reporting these two indicators appears to be a logical consequence.The arguments advanced by the EBA in favour of extending the reporting and publications on the EBA website are designed to enhance information and certainty for depositors. However, it should there-fore be noted that both types of AFM serve to secure deposits.
The GBIC supports the results of the accompanying impact assessment of the draft guidelines re-garding the treatment of unclaimed repayments. The results of the impact assessment should also apply to reporting unclaimed repayments. As it is not possible to identify the impact of the total amount of unclaimed repayments on the available means, reporting unclaimed repayments also does not add any value to the information gain for depositors.
In this respect, the GBIC supports revising paragraph 26 of the guidelines as well as paragraph 47 of the consultation paper, according to which DGSs should report unclaimed repayments to the EBA. This reporting does not deliver any added value, except in the very specific case that a compensation event occurs shortly before the reporting date. By contrast, it means considerable effort for the DGS, since insolvency proceedings can sometimes drag on for years, and repayments not claimed by the date they become time-barred would still have to be reported although this would not have any sig-nificant impact on the available financial means. On the contrary, experience shows that no further repayments are claimed by depositors more a few weeks after the occurrence of a compensation event. In the vast majority of cases, the remaining repayment claims are not asserted by the benefi-ciary, even at a later date.