First things first. In legal proceedings you get only one chance. ‘Double jeopardy’ is – fortunately – not possible in our legal system. This means that victims of bank failures need to follow the rules in order to receive maximum compensation.
Although subjective damages can influence the future of individual customers, it does not happen often that judges in Europe are willing to compensate full consequential damages. Often this is challenged in civil court where the bank and its customers discuss liabilities. Do realize that this can only take place at the complete end of the liquidation stage of the bank, when there is absolutely no chance anymore that the bank is able to compensate victims. From a legal point of view all resources must be exhausted during the liquidation stage of the bank before claims of liability can be filed.
Customers involved in a bank failure often feel duped. The emotional impact and the loss of confidence and trust in the banking system often predominates the legal routes to follow. The absolute first hurdle to take is the indemnification of the balance on the account. This often is a struggle that involves numerous stages where each stage instigates a tranch of the total assets.
This is especially when the balance on the accounts at the failed bank exceeds the secured deposits. Depending on the country, and often the economical and strategic alliances of multiple countries, secured deposits at banking institutions vary between 100.000 Euro (EU memberstates) and 250.000 USD (FDIC members).
Deposit Protection Schemes
When there is no future for the bank and there is no return, the central bank can decide to activate the Deposit Protection Scheme. This external guarantee scheme protects customer deposits at banks and branches of international banks. Deposit Protection Schemes often cover deposits up to 100.000 Euro in the member states of the European Union and up to 250.000 USD for members of the Federal Deposit Insurance Corporation (FDIC).
The activation of the Deposit Protection Scheme is the first step in the liquidation of the bank. Traditional liquidation, where assets and liabilities are matched can commence after a competent authority, often the judge in court, agrees to liquidate the bank. After this verdict an external liquidator is appointed by court and payouts can start.
Liquidation of the bank
During the liquidation stages of a commercial bank, the liquidator investigates the assets, liabilities and claims towards potential accomplices or associates.
It is common that payouts happen in tranches. Funds can become available in the short term and long term and the liquidator agrees to pay upon availability. The complexity of the banks activities and the potential liability of the management or owners of the bank determines the length of liquidation.
Claims of liability
Bad management, fraud or even criminal behaviour can result in the closure of a bank. When the findings by the central bank exceed the limits of good governance, court can appoint a culprit. This verdict immediately allows victims in a civil case to issue claims of liability. It is therefore necessary to follow the rules of the legal system if you want to receive maximum compensation for losses you suffered.
A class action, class suit, or representative action is a type of lawsuit where one of the parties is a group of people who are represented collectively by a member of that group. The class action originated in the United States and is still predominantly a U.S. phenomenon, but several European countries with civil law have made changes in recent years to allow consumer organizations to bring claims on behalf of consumers.
To start a class action and successfully claim damages, the question of liability most be answered first. The only competent authority able to determine the responsible parties is a magistrate or judge in court. The risk of ‘random shooting’ can result in a total rejection of your claim. It is therefore recommended to choose wise from the beginning.
Especially in countries where bank failures don’t happen often, it is dangerous to just follow the crowd. Feeling duped is not enough in court. There must be sufficient evidence of a violation of public law, civil law or even criminal offences or activities in order to win a class action.