What is a Deposit Guarantee Claim?

Licensed and supervised credit institutions participate in a deposit guarantee scheme to protect account holders against the consequences of bank insolvency. Such paybox functions avoid disruption of the payment system and provide liquidity to retail depositors and thus stimulate the real economy. The failure of a financial institution occurs when account balances and other liabilities cannot be returned to their rightful owner on demand. A deposit guarantee scheme is then activated by the respective supervisor and creditors are asked to submit a DGS claim or confirm their claim eligibility.

A deposit guarantee claim is nothing more than a request for repayment of the insured account balance by eligible creditors when their bank stops operating. The DGS is triggered when the respective supervisor determines that the bank is failing or likely to fail. The fund is managed by its administration and aims to repay eligible creditors. Compensation is entitled to verifiable claims of eligible account holders. One of the duties of the fund administration is to confirm claim eligibility and reject payment to those who are not entitled to compensation.

Bank account holders and creditors whose bank fails can apply to the DGS fund for repayment of their insured deposit. Depending on the terms of the applicable fund and the guidelines of the regulator, claims are either automatically dispensed or require a pro-active approach from the creditor. The fund administration must confirm the claim eligibility before repayment is made to the creditor. The creditor and DGS fund have separated responsibilities. The fund administration can only confirm eligibility for complete claims and payment is only made when the creditor is able to receive the funds in accordance with the legal framework.

Deposit Guarantee Claims most often are limited by time. Funds remain open for periods between one to five years due to the position of the fund in future bank liquidation, dissolution or bail-in procedures. Creditors who fail to fail their claim within the predefined timeframes often lose their rights for a deposit guarantee claim and are subject to standard liquidation procedures.

A deposit guarantee claim is alongside statutory administration and bank liquidation one of the core pillars of asset and fund recovery in bank failures. Creditors must focus on all three pillar to ensure maximum recovery. However, almost all bank failures are triggered by financial challenges. Therefore (collective) civil action might also be needed to recover the complete account balance. These actions can be taken throughout the full procedure while creditors must realize that such procedures almost always prioritize those who are first in line. Thorough examination of the available options is therefore at all times recommended. For more information on your prospects for fund recovery in bank failure and to file your DGS Claim, follow this link.