29. September 2017

Reform will enhance financial strength of the Deposit Protection Fund

On 1 October 2017 the reform of the Deposit Protection Fund will take effect. “The reform will above all enhance the financial strength of the Deposit Protection Fund. That’s good news for banks’ retail customers, who will continue to be fully protected,” said Hans-Walter Peters, President of the Association of German Banks and Spokesman for the Managing Partners of private bank Berenberg. The changes were needed to respond to the new regulatory environment and the changing investment behaviour of certain types of investor. For this reason, the federal government, regional and local governments and “bank-like” clients will no longer be covered by the voluntary Deposit Protection Fund after 1 October 2017. “As professional investors, they normally have the knowledge needed to be able to assess risks,” Peters added.

Nothing will change for retail clients and foundations with legal personality when the reform takes effect on 1 October 2017. “They will continue to enjoy full protection without any restrictions,” stressed Peters. Generally speaking, at least one million euros of deposits per customer per bank will remain protected. At many banks, the protection ceiling is significantly higher.

To strengthen the Deposit Protection Fund, the following three measures will be implemented:

  1. From 1 October 2017, “bank-like” clients (certain investment firms and financial institutions), the federal government and regional and local governments will no longer be covered by the voluntary Deposit Protection Fund. Grandfathering arrangements will apply to existing deposits until the next maturity or termination date.

    Protection will remain in place for businesses, insurance companies and semi-governmental agencies, such as pension schemes for certain professions, though it will be adjusted as follows:
     
  2. From 1 October 2017, promissory notes and registered bonds will no longer be covered by the voluntary Deposit Protection Fund. Grandfathering arrangements will protect notes and bonds purchased before 1 October 2017 until the next maturity or termination date.
     
  3. In a second phase starting on 1 January 2020, deposits with a term of over 18 months will be excluded from the scope of protection unless they belong to private individuals or foundations. Once again, deposits made before this date will be covered by grandfathering arrangements until the next maturity or termination date.

Private individuals and foundations with legal personality are explicitly excluded from these two measures. Registered savings bonds and deposits with a term exceeding 18 months will therefore continue to be protected for retail customers and foundations.

Further information can be found here.

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