Deposit Guarantee Fund
The task of the Deposit Guarantee Fund is to safeguard the receivables of the depositors of banks. The Fund can be used for the following purposes:
- payment of compensation for depositors
- financing of an arrangement to transfer the deposits in a deposit bank for the assumption of liability by another Finnish deposit bank
- financing the resolution of a deposit bank.
The Deposit Guarantee Fund is financed by deposit guarantee contributions raised from banks. The individual contributions are determined on the basis of the amount of each bank’s covered deposits and risk level. Raising of contributions to the Fund commenced in summer 2015. The Fund’s target level is an amount equivalent to 0.8% of the total amount of covered deposits, and it is envisaged to be achieved by July 2024. The current size of the Fund is EUR 141 million. As, in the event of a crisis, the assets of the Old Deposit Guarantee Fund (VTS Fund) are placed at the disposal of the Deposit Guarantee Fund managed by the Financial Stability Authority, there is a total of approximately EUR 1.1 billion in assets available to the Deposit Guarantee Fund.
If the assets of the Deposit Guarantee Fund are insufficient for the payment of compensation, the Financial Stability Authority may obligate deposit banks to pay an additional annual contribution or lend assets to the Fund.
The Board of the Fund decides on the Fund’s risk management, investment plans and principles. The relevant legislation imposes obligations to invest the Fund’s assets prudently and to ensure the Fund’s liquidity, including the return on the Fund’s assets and diversification of investments.
On its website, the European Banking Authority (EBA) publishes information on the level of covered deposits in EU Member States and the financial means available to their respective deposit guarantee funds.
VTS FUND – Old Deposit Guarantee Fund
In Finland, deposit banks have already paid contributions to the Deposit Guarantee Fund since 1998. The Fund, which operated administratively in connection with the Federation of Finnish Financial Services, now Finance Finland (FFI), was responsible for the operation of the Deposit Guarantee Scheme until the end of 2014, when the current legislation entered into force.
Responsibility for the Deposit Guarantee Scheme in Finland as well as management of the Deposit Guarantee Fund were transferred to the Financial Stability Authority as of 1 January 2015. In practice, the collection of contributions for the new Deposit Guarantee Fund, established as an off-government budget fund, began in summer 2015. The scheme that had previously operated in connection with Finance Finland was abolished, and it no longer has duties related to the maintenance of the Deposit Guarantee Scheme. As provided by law, however, the assets collected previously were left in the old Fund, and it continues to be maintained in connection with Finance Finland. The Fund was renamed the Old Deposit Guarantee Fund (VTS Fund) in order to avoid confusion with the official Deposit Guarantee Scheme.
The VTS Fund currently holds approximately EUR 900 million worth of contributions from banks. According to law, assets from the VTS Fund will be gradually transferred to the Deposit Guarantee Fund managed by the Financial Stability Authority. In practice, the VTS Fund is responsible for redeeming its member banks’ deposit guarantee contributions in the proportion to which each member bank has contributed to the Fund over the years. More precise provisions on this matter can be found in the rules of the VTS Fund. The VTS Fund acts as a buffer fund for the Deposit Guarantee Fund, and its assets cannot be used for purposes other than covering the costs arising from the deposit guarantee. If the assets of the Deposit Guarantee Fund are insufficient for the reimbursement of covered deposits or for the fulfilment of the Deposit Guarantee Fund’s other obligations, the Financial Stability Authority may obligate the VTS Fund to transfer assets to the Deposit Guarantee Fund.