Experiences from a small compensation case

Helena PerssonDeposit Guarantee ManagerSwedish National Debt Office

Swedish Deposit Insurance - Outline

• Overview responsibility and legislation

• Experience from a compensation case

• Regulatory changes

• Contingency Planning

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Swedish National Debt Office

• Public authority responsible to the Ministry of Finance

• Providing banking services for the central government

• Raising loans and managing central government debt

• Providing state guarantees and loans

• Managing government support for banks

• Responsible for the deposit insurance and investor compensation schemes = “Guarantee Authority”

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Swedish Deposit Insurance

• EU directive/Swedish Act (1996)

• 1996: Covers accounts with deposits for immediate withdrawal2008: Also covers accounts for fixed term deposits2011: SNDO approves accounts covered

• Compensation level (2006: SEK 250 000, 2008: SEK 500 000 2009: SEK 500 000/EUR 50 000) 2010: EUR 100 000

• Both actual holdings and accrued interest

• Per depositor and institute

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Swedish Deposit Insurance

• Pay out period1996: 3 months2010: 20 working days

• Pay box (“plus” if including SNDO bank support mandate)

• Trigger points 1996: Bankruptcy 2010: Also if decided by the FSA

• Preparations1996: No access to data before bankruptcy2010: Possible to receive data when asked

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Swedish Deposit Insurance

• All institutes with a permit from the FSA to take on deposits are automatically covered by the Deposit Insurance

• Member institutes supervised by the FSA

• 140 members (banks, credit market companies, securities companies)

• Ex-ante funding

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Ex-ante funding

• Member institutes holding covered deposits pay an annual fee.

• The total fee is 0,1% of covered deposits.

• 1 313 million SEK (2013).

• Over time the fee shall finance the scheme in full (including our administration costs).

• All fees are transferred to a fund. No target level.

7

Fund management

• Government bonds (up to 10 years maturity) or interest bearing account

• 28,3 billion SEK (31 December 2012)(approx. 2,2% of covered deposits)

• Unlimited possibilities to borrow from the state by law

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Three compensation cases

2 failures in 2006

•Custodia - 1 282

depositors- SEK 135

million

•Allmänna kapital - 287

depositors- SEK 41

million

1 bank failure in 2010•Capinordic Bank – branch of Danish Bank

- Topping up arrangement- Administered by the Danish

DIS- Payment from the Swedish

DIS SEK 10,6 million

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Compensation cases in 2006

Allmänna Kapital» Organized data and few customers» Easy payout

Custodia » Several technical and operational problems» Much to learn from this case

10

Custodia

Investigation by the Swedish FSA

Lack of internal rules and procedures

Revoke of license

Bank run

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Custodia

Significant time before the guarantee could come into effect

•Company appealed decision to court – avoid liquidation

•Paid the most persistent depositors

•Court rejected appeal – company appealed to higher court

•Bankruptcy 8 months after FSA’s decision

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Custodia

Extended payment period for reimbursements

•No access to IT-system before bankruptcy

•Verification of accounts

•Investigation of database

•Apply to court for extension of payment period + 3 months

13

Custodia – Practical problems

• Bankruptcy only trigger

• No access to the company’s IT-system

• Uncertainty about quality of data

• Uncertainty about covered accounts

Swedish Commission

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New regulations 2010

• Decision from FSA to trigger the deposit guarantee

• IT-system requirements

• Mandate to request information about depositors from institutes

• Institutes are required to provide information about depositors without delay

• Institutes must apply for accounts

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Experiences - Custodia

Bank run caused by the decision to revoke the license

Significant time before the guarantee could come into effect

Difficult to verify the depositors’ accounts

• FSA can decide for the deposit guarantee to come into effect

• Authority to provide information about covered accounts

•Quality requirements for IT-system•Access to depositor data at any time

Problems Solutions

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Contingency Planning

• SNDO since 2008

• 5 employees at the Financial Stability & Consumer Protection Department

• Separate legal, communication, back office and IT-resources

• Stand by working force within the SNDO • Agreements signed with external staff agencies

• Possibility to use external call center

• Contingency plan

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Contingency Planning

• IT-system developed in-house

• Institutes required send depositor information

• Periodic tests of the institutes’ files

• Periodic training of staff

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International Cooperation

• European Forum of Deposit Insurers (EFDI)

• International Association of Deposit Insurers (IADI)

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Thank you!

helena.persson@riksgalden.se