Bank of Valletta chairman John Cassar White has warned that the Depositor Compensation Scheme has not yet built up sufficient reserves to cover claims, adding that ad hoc measures would be needed.
The Depositor Compensation Scheme is a rescue fund for depositors of failed banks that are licensed by the Malta Financial Services Authority, and is based on an EU Directive. It is capped at €100,000 per depositor per account per bank.
The Maltese fund had reserves of nearly €100 million at the end of 2012, which were accumulated from an initial contribution made by banks licensed with the MFSA, topped up by supplementary and special contributions. The amount paid by each bank is proportionately based on its eligible deposits.
Malta is by no means the only country where reserves have not yet reached optimal levels. A new EU directive is already being discussed and once the European Banking Union (EBU) is set up, a Bank Resolution Mechanism would come into force which would ensure government intervention to top up the scheme.
Mr Cassar White said he was aware that the fund was being built up gradually.
“What worries me is that the scheme is based on a very small mix of banks in Malta. Because the scheme is based on an insurance concept, on its own it would never be enough to cater for cases where the scheme needs to be used to compensate depositors for money they may have lost through a bank.
“What is positive is that if the European Banking Union project goes ahead, then we will be in a position to be part of a eurozone-wide depositor guarantee scheme. On its own, this raises another concern because we believe that we are a prudent bank and do not take risky decisions as this is not our banking philosophy.
“If we are going to contribute to a scheme where all the members of the scheme are treated equally, then obviously we are concerned. So through our regulator we are trying to make sure that any Europe-wide depositor compensation scheme will be risk-based, so banks which adopt a riskier strategy should contribute more to the scheme than other banks. There are metrics that can be used to decide whether a particular bank’s strategy is riskier than that of other banks.
What worries me is that the scheme is based on a very small mix of banks in Malta
“Although the current scheme is a very important step forward and much better than having nothing, it was never going to be sufficient on its own to put at rest the minds of those who deposit money in the banks.
“I don’t know what would have happened if there had been a claim against this depositor scheme. Probably there would have had to be ad hoc arrangements to compensate people.
“I think a deposit guarantee scheme on a eurozone-wide basis will be more feasible, as long as it is priced in the right way and as long as it is risk-based,” he concluded.
Mr Cassar White’s point echoes that made last August by Mark Watkinson, the chief executive officer of HSBC Bank Malta, who said he would favour the re-inclusion on a clause in European legislation that would factor in the risk appetite of a bank when calculating its contribution to the Depositor Compensation Scheme.