The Deposit Guarantee Fund safeguards deposits
The Deposit Guarantee Fund’s purposes and size
The task of the Deposit Guarantee Fund is to safeguard the assets of depositors when a bank becomes insolvent. The Deposit Guarantee Fund is financed by deposit guarantee contributions raised from banks. The Deposit Guarantee Fund can be used for the following purposes:
- Payment of deposit guarantee compensation to 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 when bail-in would have an impact on the deposits to be compensated.
The financing of the Deposit Guarantee Fund began in summer 2015. The Fund’s target level is equivalent to 0.8% of the total amount of covered deposits, which corresponds to approximately EUR 1.2 billion based on the information valid at the end of 2020. The target level must be achieved by July 2024. Following the deposit guarantee contributions collected in 2022, the size of the Deposit Guarantee Fund is approximately EUR 920 million.
Chart: Target level of the Deposit Guarantee Fund
The Financial Stability Authority reports information annually to the European Banking Authority on the total amount of covered deposits and the assets available to the Deposit Guarantee Fund. The EBA publishes information on the deposit guarantee schemes of all EU Member States on its website (Deposit Guarantee Schemes Data).
The Deposit Guarantee Fund is administered by the Financial Stability Authority
The Deposit Guarantee Fund in Finland is part of the Financial Stability Fund administered by the Financial Stability Authority, which consists of two separate funds: the Deposit Guarantee Fund and the Resolution Fund. The Financial Stability Fund is external to the State budget.
The Financial Stability Fund has a Board that is separate from the Authority and appointed by the Ministry of Finance to decide on the Fund’s risk management and investment planning and direct the investment of the assets. The Board consists of the Chair, the Vice-Chair and 3–5 other members. Each member has a designated deputy. 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.
The Deposit Guarantee Fund is financed by deposit guarantee contributions
The Deposit Guarantee Fund is financed by deposit guarantee contribution raised from deposit banks. The individual contributions are determined on the basis of the amount of each bank’s covered deposits and risk level. Deposit guarantee contributions are collected annually. The due date is at the end of June.
Additional financing arrangements for the deposit guarantee scheme
If the assets previously raised by 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. Additional annual deposit guarantee contributions may not exceed 0.5 per cent of a deposit bank’s covered deposits. The terms of loans are determined by a decree issued by the Ministry of Finance.
In the event of a bank’s insolvency, the Deposit Guarantee Fund also has access to the assets of the Old Deposit Guarantee Fund (VTS Fund), which acts as a buffer fund. 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. The VTS Fund is administered by Finance Finland and its size was EUR 620.7 million at the end of 2020.
Useful links related to this topic:
Decree of the Ministry of Finance 75/2020 on the terms of loan agreements between the Deposit Guarantee Fund and deposit banks