Matthew Vella
Maltese banks that suffer an eventual crash would have to resort to government or the Central Bank to compensate any deposits lost, because a rescue fund to which they contribute covers just over €6.2 million.
The depositors’ compensation scheme is a rescue fund for depositors of failed banks when banks are unable to meet their obligations towards depositors.
But a European Commission report and the annual financial statements of Malta’s rescue fund show there is just over €6.2 million for compensation claims in case of a bank failure.
The EC report, a 2008 study into the EU member states’ rescue funds, goes further by stating that Malta’s minimal coverage means “none of the members (banks) would be covered in case of a failure”.
Along with the Czech Republic, Malta had just 3% of total 2006 deposits covered by the rescue fund and one of the lowest of all member states.
Today there is over €8.6 billion in deposits, and over €8.8 billion in credit to Maltese residents.
The EC report clearly states that Malta would have no coverage in the case of medium or high-impact crashes, meaning that either government or the Central Bank would have to step in to compensate depositors.
The guarantee on deposits was increased to €100,000 from €20,000 in October 2008 in the wake of the global financial crisis. Finance minister Tonio Fenech stated back then that banks had a sound business model and that there was no cause for alarm.
The scheme covers 90% of a bank’s net liability to a depositor – being all the depositor’s assets, less any amounts due to the bank, such as loans. Compensation is limited to a maximum of €100,000.
The rescue fund, which is not an insurance fund, is funded by annual contributions from Malta-registered banks. They pay an initial €23,293 payment and 0.1% of their eligible deposits every year, for a period of five years. A minimum of €2.3 million must be paid over these five years.
At the start of 2008, right before the global financial crisis, the scheme had accumulated €6.2 million in contributions.
But according to the rescue fund committee’s annual report, the banks did not pay their contributions when called upon in March 2007.
The report says the Malta Bankers Association wanted to dispense with the obligations to pay the contributions, and that the scheme should reduce the contributions or substitute the payments by means of third party guarantees.
The contributions were paid in November 2007 when their request could not be acceded to at law.
Later, it was decided that banks would give as security a pledge over investments, up to 2010, instead of contributions that were over 0.1% of their deposits.
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