Deposit Insurance

Deposit Guarantee Schemes provide bank depositors with an insured, yet maximized, repayment facility to maintain confidence in the financial system.

Bank resolution seeks to avoid the disruption of the payment system. In order to protect the financial system, regulators balance market discipline with financial system protection but are hesitant to support excessive risk taking and rogue behavior of financial institutions. Thus, when financial institutions fail or are likely to fail, early intervention measures are meant to mitigate risk for society and other stakeholders.  Such measures include but are not limited to statutory administration, deposit protection and eventually bank liquidation.

Financial regulators oversee the banking system and monitor the stability of local financial systems. Supervised financial institutions must maintain capital reserves, adopt market discipline and implement sound risk management and internal controls. Compliance is mandatory and supervised financial institutions must cooperate with supervisory inspections of their books, documents, and records. While several measures are taken to ensure the stability of the financial system, regulators cannot guarantee the safety and soundness of individual banks. In addition to statutory administration, the bail-in tool, and traditional insolvency and liquidation procedures, regulated financial institutions must participate in a local deposit guarantee scheme.

Deposit protection secures bank account balances for the clients of a financial institution. However, there are limitations to the scope and nature of such insurance schemes. These can include the exclusion of types of creditors, restricted business activities, currencies, and the maximum financial coverage. Most deposit guarantee schemes provide a substantive compensation to eligible creditors. EU countries harmonized a level of protection for the amount of 100.000 Euro. The US based FDIC covers 250.000 USD. In the UK, the FCSC maximized deposit insurance up to 85.000 GBP, and in Australia the FCS provides account holders at authorized deposit-taking institutions insurance of 250.000 AUD. Jurisdictional arbitrage is possible and sometimes even recommended for wealth management perspectives.

Creditors of failed financial institutions are caught by surprise when they have no access to their bank account, internet banking and payment facilities are blocked, and their cards are declined. Even though this is an emotionally loaded situation, most creditors eventually seek affordable yet predictable ways to recover their money. The absolute first thing to consider is how to leverage the distinct components of statutory administration. Opportunities come and go and as revealed by recent bank failures in Cyprus and Malta where check collection and controlled processes to return customer money was limited to just a few months. Therefore, time is of the essence for creditors who need to utilize different strategies to get their money returned.

For international bank account holders who bank with privately owned financial institutions abroad, asset recovery can be a pest. To make this process easier, Legal Floris LLC provides these very creditors with a full service, result based, done with you DGS recovery package. No win, no fee. Contact us today for further information and a free case evaluation.

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