Deposit guarantee system on the way to European standards
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In general, guaranteeing deposits as a phenomenon has existed for only about a hundred years, and modern approaches to this mechanism began to appear at the end of the 90s of the last century. The Ukrainian deposit guarantee system was born and formed in parallel with global processes: in September of this year, the Deposit Guarantee Fund celebrated its 25th anniversary.
Interesting fact: in 2002, the Fund became one of the 25 co-founders of the International Association of Deposit Insurers.
In 1998, when the Guarantee Fund was created, citizens were provided compensation of only five hundred hryvnias. In the future, the guaranteed amount of compensation for the deposit increased: during the years 2012-2021, it already amounted to 200 thousand hryvnias.
Due to the full-scale war, the protection of individual depositors has undergone an unprecedented strengthening thanks to a separate law, according to which Ukrainians are guaranteed 100% reimbursement of all deposits during martial law and within three months from the day of its termination or cancellation. After the victory, when the restrictions are returned, the maximum amount of compensation will increase and will already amount to UAH 600,000. This will allow Ukraine to cover more than 99.5% of depositors’ accounts with guarantees and gradually reach the world standard of more than 60% coverage of the amount of deposits in the banking system.
“It is necessary to understand that, as of today, the financial sector is balancing between the measures necessary to ensure the financial stability of Ukraine in the conditions of war, and the efforts aimed at the implementation of the European integration policy,” says Anastasiya Voronova, head of the legal group of the USAID “Financial Sector Reform” project.
The maximum amount of compensation is fixed – this rule also applies in other countries. Historically, deposit guarantee schemes have functioned to protect only “retail” depositors – ordinary citizens who may find it difficult to understand the ins and outs of the banking system and who do not possess super-high net worth. It is believed that those who are ready to make large contributions should take into account the risks and realize that the state will not be able to return everything they have lost.
In countries with a strong economy, the deposit guarantee system also applies to legal entities. Deposits of small and medium-sized enterprises and non-profit organizations are mainly insured. Therefore, Ukraine also strives for this. Since 2017, the effect of the deposit guarantee system has already extended to individual entrepreneurs. At the same time, the improvement of the system of selling assets of bankrupt banks has a positive effect on the process of payments to unsecured depositors (legal entities). After all, the funds received from the sale and management of assets are directed to settlement, for example, with legal entities that become its creditors in the process of bank liquidation.
The deadline for the beginning of reimbursement to depositors is gradually being shortened. At the start of the work of the Guarantee Fund, the law stipulated that reimbursement should begin no later than 3 months. Today, the deadline has been reduced to 20 working days, and in practice the payment process starts even earlier. The European norms, to which the Guarantee Fund strives, provide for the start of payments on deposits no later than 7 days after the date of recognition of the bank’s insolvency.
Ukraine’s membership in the EU, by the way, will leave no alternative to further increasing the guaranteed amount. The European standard provides for the payment of up to 100,000 euros to one person whose deposit was in the accounts of a bankrupt bank and will be extended, in particular, to branches of foreign banks.
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