Bank deposits: how protected are they?

How well are bank deposits protected? The guide to understanding how much the Interbank Deposit Protection Fund can guarantee our savings.

A financial crisis is capable of generating panic in all investors and savers, even the most experienced. For this reason, it is not necessary to be found unprepared; being trained and aware savers and investors can help us to face in the best possible way, even the moments of a financial crisis.

In such cases, the first thing we want to safeguard is our savings held in bank deposits.

Which financial institutions participate in Find?

In Italy, the body responsible for guaranteeing bank deposits is the Interbank Deposit Protection Fund. All banks resident in Italy are obliged by law to adhere to the IFDC (membership is a necessary condition for the exercise of banking activity), except for cooperative credit banks, which, in turn, stick to the Cooperative Credit Depositors Guarantee Fund. Banks with online operations are also obliged to adhere to the FITD like all other banks.

Branches of non-EU banks authorized in Italy are also members of the FITD.


What savings are reimbursed by FITD?

The FITD protects current accounts, deposit accounts (including restricted funds), bankers’ drafts and certificates of deposit in registered form (not bearer) and passbooks.

The FITD does not guarantee investments such as government securities, bonds, repurchase agreements, and shares. However, suppose the bank should become insolvent. In that case, the holders of the investments deposited are not in any danger. They are not part of the bank’s assets and are therefore returned to the owner, who does not incur any bankruptcy proceedings unless they own securities issued directly by the insolvent bank. The protection offered by the FITD does not cover valuables in safe deposit boxes, but in the event of the bank’s compulsory liquidation, the assets in the box are returned to the owner.

The coverage limit for bank deposits

The coverage limit for bank deposits is €. 100,000 per depositor per individual bank, regardless of whether they belong to the same banking group. In practice, this means that if more than one account is held with the same bank, the total maximum guarantee will be €. 100,000. If the same depositor has several accounts with different banks, he will benefit from a warranty of up to €. 100,000 for each of the accounts in his name.

In the case of joint accounts, each account holder has a maximum guarantee of €. 100,000.

From what we have seen, it becomes essential to divide your savings into current accounts of various credit institutions to avoid exceeding the maximum guaranteed deposit threshold.

How to get your bank deposits refunded?

The procedures for the reimbursement of the sums do not have to be activated directly by the saver, nor do they fall within the liquidation procedure of the bank, but are activated automatically in a relatively short time. The prerequisite for the intervention of the Interbank Fund is the state of compulsory liquidation of the bank. According to Directive 2014/49/EU, the reimbursement is made within seven working days from the date on which the effects of the compulsory liquidation of the bank take effect, and it will be Fitd itself to contact and reimburse each entitled person. The bank has five days to process and send to the Fund the information flow containing the aggregate positions for each depositor.

Everything else that does not fall under the coverage of the Fitd will instead be subject to a reclassification of the balance sheet, which will then determine the priorities for repayment to which the bank’s resources will be allocated. This means that once the balance sheet has been closed between assets and liabilities, the liquidator will proceed to reimburse the various creditors, starting with privileged creditors (which are, for example, the bank’s employees for their salaries or the Treasury for any unpaid taxes, etc.) and gradually proceeding towards the other categories that have a claim on the bankrupt credit institution.


How is Fitd funded?

In practice, the FITD is a consortium where member banks, on-call, must pay between 0.4% and 0.8% of all reimbursable funds of all members of the consortium. According to the Fund’s 2015 financial statements report, 202 banks are members of the consortium. Therefore, the fund is ready to repay up to 515 billion euros in case of total default of the system. A figure is certainly not sufficient to cover all the deposits under protection (about 770 billion euros). Still, we must consider that the probability that the entire national and international banking system of deposits goes into default is not preventable.

The Fitd is currently capable of supporting the failure of a small to the medium-sized credit institution. Still, we can foreseeably consider the Fitd inadequate for a default of medium to large institutions. However, we can say with absolute certainty that there is no risk in the medium term of an event of such worrying proportions occurring.

Keep in mind that the various States, as you have seen in recent years, have no interest in seeing a large credit institution go into default, precisely because the mechanism of “panic” and crisis would come to infect other credit institutions, creating a chain system, which could have incalculable dimensions. For this reason, both the ECB and the American FED would most likely intervene before the default, encouraging a merger with other institutions or directly guaranteeing the liquidity injected into the institution to overcome the crisis.

The advice I can give you is always to keep yourself informed about the capital conditions of your reference credit institution. To do this, you’ll have to look at the Cet1 index, which stands for Common Equity Tier 1, the parameter that measures the solidity of a credit institution. To verify if the bank is solid, Cet1 must be above the minimum threshold for Italian banks, set by the ECB, at 9%.

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