The Deposit Guarantee Scheme Directive

Dear Madame Lagarde

I refer to my letter Thursday 13 November and to the pleasant telephone conversation we had last Friday, 28 November, where we discussed different aspects regarding the proposal for amendments to the Deposit Guarantee Scheme Directive, hereunder the Council proposal for the full harmonisation of the deposit coverage amount. First of all I would like to thank you for taking time to discuss the matter with me on such a short notice.

I have noted that it may be difficult for you to introduce new changes in the draft compromise text, inter alia to introduce a “grandfathering” clause, where Member States may maintain a higher deposit coverage than EUR 100.000, if they had such higher coverage per 1 January this year. I understand the difficulties in making changes to the draft text at this stage, but I would like again to stress the importance for Norway to be able to maintain our current coverage level at 2 million Norwegian kronor (equivalent to approximately EUR 235.000) in our deposit guarantee scheme.

During our conversation you pointed out that full harmonisation of the coverage level will support the following three objectives: higher security for European depositors, prevention of distortion of competition between banks in different member states, and prevention of flight of capital from one member state to another in times of crisis.

I fully support these three objectives. However, I am not convinced that a full harmonisation of the coverage level is the best way to achieve these goals, or necessary for achieving them. Before the current crisis, the coverage levels in several member states were set at the minimum amount, EUR 20.000. In several of these states, however, many depositors would have a higher level of deposits, and thus only have a guarantee for part of their deposits. In the recent financial turmoil some member states increased their guarantees, and some member states introduced unlimited deposit guarantees. This change, combined with the fact that the deposit guarantee in several member states only partly covered many customers’ deposits, created the risk for capital flight to member states with high or unlimited coverage. But the main reason for such transfer of deposits, from one jurisdiction to another, would be that the level of coverage is too low in some member states.

In my opinion, a guarantee scheme which reflects the general level of deposits in the relevant member state, will sufficiently prevent the distortion of competition and the risk for flight of capital from one member state to another, and at the same time give leeway for each member state to decide the level of coverage which will be adequate to secure the deposits in the relevant state. The existence of a good deposit guarantee scheme, which reflects the general level of deposits in each member state, will also to a greater extent make it possible to resist pressure to offer an unlimited guarantee for deposits during periods with financial turmoil.

As I pointed out in my letter 13 November, we support an amendment to the directive which increases the minimum level of coverage, as proposed by the Commission. However, it is important for us that the directive, when included in the EEA-agreement, does not limit our possibility to maintain the level of coverage we have in Norway, which is well adjusted to the level of deposits in Norway, and which meets customer expectations.

I will therefore once again ask you to consider the possibility of introducing a “grandfathering” clause in paragraph three of article 7, making it possible to maintain deposit guarantees with higher coverage than EUR 100.000, for member states which had such higher coverage at the beginning of this year. I have understood that such a possibility, in practical terms, nearly will lead to the same result as a full harmonisation provision, with the exception of a very few member states.

Yours sincerely,

Kristin Halvorsen