After financial crisis, Fenech finally raises deposit rescue to €100,000
Matthew Vella
It has been a full 10 months since Finance Minister Tonio Fenech announced that depositors’ banking savings would be guaranteed up to a maximum €100,000 in the event of a banking crash.
But it was only last week that Fenech passed a legal notice that formally raised the maximum compensation from €20,000 to €100,000, after the black clouds of the global financial crisis of 2008 seemed to have parted.
Fenech announced back in October 2008 that the limit had already been increased to €100,000, when the European Council called on member states to raise their guarantee funds.
The depositors’ compensation scheme is a rescue fund for depositors of failed banks when banks are unable to meet their obligations towards depositors. It covers 90% of a bank’s net liability to a depositor – namely the depositor’s assets, less any amounts due to the bank, such as loans – to a maximum of €100,000.
Still, Maltese banks that could suffer an eventual crash would have to resort to government or the Central Bank to compensate for any lost deposits. That’s because the rescue fund to which they contribute covers just over €6.2 million.
A European Commission report last year, analysing the EU member states’ rescue funds, even stated 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 its total 2006 deposits covered by the rescue fund: one of the lowest of all member states.
Today there is over €8,600 million in deposits, and over €8,800 million 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 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 €6.5 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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