A committee appointed by the Finnish Ministry of Finance has issued a proposal concerning amendments to the deposit guarantee scheme.
The committee proposes a change from the prevailing unlimited deposit guarantee scheme to a restricted deposit guarantee fund with a maximum payout of Fmk150,000 (US$33,000) per depositor per bank. This would be slightly higher than the limit laid down by EU Directive 94/19/EEC but equal to the average level of other EU member states. The guarantee would cover completely more than 96% of all deposits and approximately 40% of the total value of such deposits. Considering the partial guarantee granted for deposits exceeding the maximum limit, the coverage would reach 60% of the total value of deposits.
The new restricted deposit guarantee would be realized through establishing a compulsory guarantee fund common for all deposit banks. The banks participating in the fund would be jointly responsible for the functioning and costs of the fund. The means of the fund could not be used for any purpose other than covering the participant banks' liabilities to their depositors. In order to ensure the fund is capable of making payments within the required period of three months, it could use credit facilities for this purpose.
The minimum value of the fund would equal 2% of the total deposits in the participant banks, approximately Fmk3.5 billion. This would require annual contributions of nearly Fmk300 million from the banks for the next 10 years. The value of the fund would gradually be increased until it equalled 10% of the total deposits in the banks. The contributions to the fund would consist of a fixed payment, equalling 0.05% of the bank's deposits, and of a risk-linked payment, based on the solidity ratio of each bank. The total payment could vary from 0.05% to 0.3% of the guaranteed deposits in the respective banks and would be higher, the lower the solidity ratio of the bank. This is intended to encourage banks to maintain and improve their solidity ratios.
The dismantling of the existing deposit guarantee scheme is expected to improve market discipline and risk awareness in the banking business as the banks are being forced to pay attention to their risk positions and to compete by improving their operating efficiency.
The proposed amendments to the deposit guarantee scheme are intended to enter into force in the beginning of 1998.