EBA publishes final revised Guidelines on methods for calculating contributions to deposit guarantee schemes

The European Banking Authority (EBA) published its final revised Guidelines on deposit guarantee schemes (DGS) contributions, which will strengthen the link between a credit institution’s riskiness and how much it must contribute to the DGS funds that will be used to reimburse depositors if their bank fails.
The Guidelines standardize the DGS’s system for collecting payments from credit institutions in accordance to their riskiness. After an in-depth evaluation of the present Guidelines‘ implementation from 2015 to 2021, the EBA decided to amend the Guidelines in order to strengthen the relationship between a credit institution’s riskiness and its payments to the DGS fund. Among the significant revisions to the current Guidelines are:
+ defining minimum thresholds for the majority of core risk indicators in accordance with applicable regulatory minimums, and adjusting their minimum weights to better represent the indicators‘ effectiveness in gauging the risk to the DGSs;
+ introducing a technical mathematical improvement to the formula for calculating each member institution’s risk adjustment factor that ensures a constant relationship between the riskiness of institutions and their DGS contributions;
+ specifying how to account for deposits where DGS coverage is uncertain; for example, when a deposit is subject to an inheritance settlement, as well as when client money are transferred to a bank by another financial institution. Such specifications will ensure greater alignment between a credit institution’s covered deposits and its contributions;
+ introducing the option for DGSs to use a stock-based approach to raising contributions, which incentivises banks to reduce their riskiness even after the DGS fund has reached its target level of contributions; and
+ clarifying how to raise contributions following the use of DGS funds.
Lastly, the EBA condensed and simplified the Guidelines‘ phrasing.