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Experiences from a small compensation case

Experiences from a small compensation case. Helena Persson Deposit Guarantee Manager Swedish National Debt Office. Swedish Deposit Insurance - Outline. Overview responsibility and legislation Experience from a compensation case Regulatory changes Contingency Planning.

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Experiences from a small compensation case

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  1. Experiences from a small compensation case Helena PerssonDeposit Guarantee ManagerSwedish National Debt Office

  2. Swedish Deposit Insurance - Outline • Overview responsibility and legislation • Experience from a compensation case • Regulatory changes • Contingency Planning

  3. Swedish National Debt Office • Public authority responsible to the Ministry of Finance • Providing banking services for the central government • Raising loans and managing central government debt • Providing state guarantees and loans • Managing government support for banks • Responsible for the deposit insurance and investor compensation schemes = “Guarantee Authority”

  4. Swedish Deposit Insurance • EU directive/Swedish Act (1996) • 1996: Covers accounts with deposits for immediate withdrawal2008: Also covers accounts for fixed term deposits2011: SNDO approves accounts covered • Compensation level (2006: SEK 250 000, 2008: SEK 500 000 2009: SEK 500 000/EUR 50 000) 2010: EUR 100 000 • Both actual holdings and accrued interest • Per depositor and institute

  5. Swedish Deposit Insurance • Pay out period1996: 3 months2010: 20 working days • Pay box (“plus” if including SNDO bank support mandate) • Trigger points 1996: Bankruptcy 2010: Also if decided by the FSA • Preparations1996: No access to data before bankruptcy2010: Possible to receive data when asked

  6. Swedish Deposit Insurance • All institutes with a permit from the FSA to take on deposits are automatically covered by the Deposit Insurance • Member institutes supervised by the FSA • 140 members (banks, credit market companies, securities companies) • Ex-ante funding

  7. Ex-ante funding • Member institutes holding covered deposits pay an annual fee. • The total fee is 0,1% of covered deposits. • 1 313 million SEK (2013). • Over time the fee shall finance the scheme in full (including our administration costs). • All fees are transferred to a fund. No target level.

  8. Fund management • Government bonds (up to 10 years maturity) or interest bearing account • 28,3 billion SEK (31 December 2012)(approx.2,2% of covered deposits) • Unlimited possibilities to borrow from the state by law

  9. Three compensation cases 1 bank failure in 2010 • Capinordic Bank – branch of Danish Bank • - Topping up arrangement • - Administered by the Danish DIS • - Payment from the Swedish DIS • SEK 10,6 million 2 failures in 2006 • Custodia - 1 282 depositors - SEK 135 million • Allmänna kapital - 287 depositors - SEK 41 million

  10. Compensation cases in 2006 Allmänna Kapital • Organized data and few customers • Easy payout Custodia • Several technical and operational problems • Much to learn from this case

  11. Custodia Revoke of license Bank run Lack of internal rules and procedures Investigation by the Swedish FSA

  12. Custodia Significant time before the guarantee could come into effect • Company appealed decision to court – avoid liquidation • Paid the most persistent depositors • Court rejected appeal – company appealed to higher court • Bankruptcy 8 months after FSA’s decision

  13. Custodia Extended payment period for reimbursements • No access to IT-system before bankruptcy • Verification of accounts • Investigation of database • Apply to court for extension of payment period + 3 months

  14. Custodia – Practical problems • Bankruptcy only trigger • No access to the company’s IT-system • Uncertainty about quality of data • Uncertainty about covered accounts Swedish Commission

  15. New regulations 2010 • Decision from FSA to trigger the deposit guarantee • IT-system requirements • Mandate to request information about depositors from institutes • Institutes are required to provide information about depositors without delay • Institutes must apply for accounts

  16. Experiences - Custodia Problems Solutions Bank run caused by the decision to revoke the license • Authority to provide information • about covered accounts Significant time before the guarantee could come into effect • FSA can decide for the deposit • guarantee to come into effect Difficult to verify the depositors’ accounts • Quality requirements for IT-system • Access to depositor data at any time

  17. Contingency Planning • SNDO since 2008 • 5 employees at the Financial Stability & Consumer Protection Department • Separate legal, communication, back office and IT-resources • Stand by working force within the SNDO • Agreements signed with external staff agencies • Possibility to use external call center • Contingency plan

  18. Contingency Planning • IT-system developed in-house • Institutes required send depositor information • Periodic tests of the institutes’ files • Periodic training of staff

  19. International Cooperation • European Forum of Deposit Insurers (EFDI) • International Association of Deposit Insurers (IADI)

  20. Thank you! helena.persson@riksgalden.se

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