Deposit Guarantee Schemes (DGS) protect positive bank account balances when the bank gets in trouble and is temporary or permanently closed and customers have no access to their accounts anymore. Deposit insurance allow the resolution authority to determine the most effective and cost-efficient plan to solve the issues of the bank. Solutions may include a corporate restructuring, a bail-in or bail-out and compulsory liquidation. The process almost always starts with special administration where bank management is replaced and a moratorium is placed on accounts and payments.
Not all bank accounts, activities and creditors are covered by deposit insurance. The DGS administrator must therefore verify all claims to the fund to ensure that repayment only takes place to eligible creditors. Verification of claims happens by matching the records of the bank with the presented documents of the creditor. Creditors must therefore maintain a proactive attitude and file documented evidence of their account deposit and ownership thereof.
The failed bank plays an important role in the DGS claim filing procedure. They must present creditor data to the DGS administrator to enable the fund to verify claims and repay eligible depositors. The administrator then asks the account holder to identify himself, present a claim form, documented evidence of account ownership, and instructions to transfer the insured account balance to a current account of the account holder.
As said, wrongful repayments and abuse must be avoided. They disrupt confidence in the financial system and undermine regulatory structures while the general pool of funds for repayment during the corporate liquidation is diminished. Most DGS administrators therefore ask account holders to file their claim in person and sign a release form for repayment. DGS claim filing procedures may also allow creditors to file the claim package via an affidavit.
A distinction between local account holders and international beneficiaries often triggers ambiguity. This is in particular true where the DGS administration invites creditors to file a claim on location and in person due to the complexity of the case and the structure of the failed financial institution. Since DGS schemes are open for a limited time and complete documentation must be presented in a meticulous state, account holders must prepare themselves accordingly because failure to comply with the rules results in imminent claim rejection and potential disqualification. Reinspection of a claim is possible but not always easy.