Belgium: Protection Fund/Special Protection Fund

Noting turmoil in financial markets, the Belgian government took measures to preserve confidence in the financial system and strengthen the protection of depositors (King of Belgium 2008). The government increased the coverage of its deposit guarantee to safeguard the stability of the financial system, protect customers and savers of Belgian banks, and preserve their confidence in the banking system (BFPS 2008b).

Belgium also increased its deposit guarantee to EUR 100,000 to help uphold EU-wide financial stability (FDP 2009b). During the crisis, unharmonized deposit guarantees caused some cross-border tensions among EU members (IMF 2009). On October 7, 2008, European finance ministers convened to plan a pan-EU response to the GFC (EC 2008). They later proposed measures meant to harmonize depositor protection across the EU, which the European Parliament adopted on December 18, 2008 (European Parliament 2008). Directive 2009/14/EC^FDirective 2009/14/EC amended Directive 94/19/EC, which standardized—among other features—the minimum coverage levels between EU member states’ deposit guarantee systems (EC/EP 2009). went into force on March 11, 2009, and the five major provisions were:

• Increasing the minimum guarantee to EUR 50,000 immediately and to EUR 100,000 by December 31, 2010;
• Reducing the maximum payment period from three months to 20 working days;
• Abolishing coinsurance;
• Informing depositors of new guarantee arrangements and notifying those account holders not protected by the guarantee schemes; and
• Committing to reviews by the European Commission (EC/EP 2009).

Belgian officials raised their minimum guarantee two years ahead of the time frame adopted by the European Commission and Parliament (FDP 2009b).

The GFC threatened several systemically important Belgian banks in the second half of 2008. Domestic political authorities took several actions to safeguard the banks’ health, including capital injections and state guarantees on interbank and wholesale credit (CBFA 2009). The Belgian government also implemented a broad credit guarantee scheme with opt-in eligibility, though no banks applied for or used the program (Lawson 2020). In relation to Fortis’s sale to BNP Paribas, the Belgian government also guaranteed the minimum value of certain impaired assets and risk positions (Petrovic and Tutsch 2009). With respect to both quantity and size of rescue measures, most of Belgium’s interventions occurred between September 2008 and April 2009 (Petrovic and Tutsch 2009).

To increase deposit insurance coverage, Belgium relied on four statutes: the Law of 15 October 2008 on Measures to Promote Financial Stability, the Royal Decree^FAccording to one external reviewer, royal decrees are symbolically the king’s decisions, but in practice, they are decisions made by the kern, which is an inner cabinet consisting of the prime minister and deputy prime ministers. The kern can legislate without parliamentary approval, and the Belgian Parliament rarely disagrees with the kern’s decisions. Royal decrees may take two forms:
The king delegates new executive responsibilities to one or more of his ministers; the minister(s) must implement the regulation and assume political responsibility; or the king exercises already vested power by modifying, replacing, supplementing, or repealing laws (Justice en Ligne 2008). of 14 November 2008, Law of 22 December 2008, and Royal Decree of 16 March 2009 (FDP 2009b).

On October 15, 2008, the Belgian Parliament passed a law^FThe Belgian Parliament implemented the new framework by amending the existing Law of August 2, 2002, on the Supervision of the Financial Sector and on Financial Services—Article 117bis of the August 2002 Law describes measures related to financial stability (Parliament 2002; Parliament 2008a, title 2). establishing a supervisory framework for financial stability and granting the Belgian king broad authority to respond to a financial crisis (Parliament 2008a, title 2). The October 15 law allowed the king of Belgium, on the advice of the Financial Stability Committee, to limit the scale or effects of a systemic financial crisis by:

• Adding or changing legislation related to the supervision of insurance companies, credit institutions, investment firms, and the financial sector; and
• Creating a guarantee system for commitments made by the aforementioned regulated institutions (Parliament 2008a, title 2).

Exercising his emergency authority on November 14, 2008, Belgian King Albert II issued a royal decree raising the existing deposit insurance coverage vis-à-vis the FDP from EUR 20,000 to EUR 50,000 and establishing a new Special Protection Fund for Deposits and Life Insurance  for balances between EUR 50,000 and EUR 100,000 (King of Belgium 2008, arts. 1, 6). The EUR 50,000 limit took retroactive effect beginning October 7, 2008, and the EUR 100,000 limit began on November 17, 2008 (King of Belgium 2008).

The king’s November 14 Royal Decree also identified mandatory participants for the SPF, including credit institutions, investment firms, branches of European Economic Area (EEA)^FThe EEA is an international agreement between the EU member states and three European Free Trade Association states (Iceland, Liechtenstein, and Norway) that allows the latter to fully participate in the EU’s single market, enabling the “four freedoms” of goods, capital, services, and persons, plus competition and State Aid rules and horizontal areas related to the four freedoms (EEA 2013). financial institutions operating in Belgium, and other investment management companies (King of Belgium 2008, art. 4, sec. 1). Insurance companies could opt to guarantee life insurance policies designated as class 21, which was a savings product in the form of a life insurance contract (FSMA 2022a; King of Belgium 2008, art. 4, sec. 2).

After its promulgation, the November 14 Royal Decree would have expired unless it was confirmed by the Belgian Parliament within 12 months of declaration (ECB 2008; Parliament 2002; Parliament 2008a). On December 22, 2008, the Belgian Parliament confirmed the November 14 Royal Decree through a corresponding program law, making permanent the crisis-time expansion of depositor guarantees (Parliament 2008b, chap. 6, art. 199). On March 16, 2009, the king issued another royal decree specifying the conditions under which the government paid out deposits and payment parameters such as timing (King of Belgium 2009).

Belgium legislators established the FDP as a public organization in 1998 and tasked it with maintaining the domestic deposit insurance system, calculating fees, collecting contributions, and managing assets (FDP 2009b). The FDP's mission was to compensate holders of cash or securities accounts who faced potential damage when their financial institutions could not reimburse cash or return securities. By providing guarantees, the FDP attempted to maintain confidence in the financial system (FDP 2009b). The FDP was responsible for onboarding member institutions, executing intervention files, monitoring regulations, reporting on regulatory developments, and planning for the protection of deposits and financial instruments in collaboration with other European authorities (FDP 2009b).

The FDP Secretariat was responsible for managing the financial resources needed to conduct interventions, and two committees managed the FDP’s day-to-day operations (FDP 2009b). The Management Committee set the FDP's general investment policy according to asset class, country of origin, and duration; the Investment Committee executed investment directives (FDP 2009b).

While the Royal Decree of November 14, 2008, raised the FDP’s protection from EUR 20,000 to EUR 50,000, it also established a separate SPF within the Caisse des Dépôts et Consignations, which was a special department^FThe Caisse des Dépôts et Consignations was the public financial institution responsible for managing deposits across public and private institutions by using national register numbers (for individuals) and company numbers (for institutions) (FPSF n.d.a). The Caisse mobilized funds between any entities contractually obligated to deposit money as collateral with one another (FPSF n.d.a). of the Ministry of Finance (“Federal Public Service Finance”), under the immediate authority of the minister of finance (King of Belgium 2008, art. 3). The General Administration of the Treasury served as the head of the SPF (King of Belgium 2008, art. 3). The SPF funded any claims in excess of EUR 50,000, up to EUR 100,000 (FDP 2009a, chap. 2, sec. 4, para. 14).

A board of directors, consisting of equal representatives of the financial sector and the government, administered the FDP (Van Nieuwenhuyze and Zachary 2010). The FDP's Management Committee was responsible for designing, implementing, and monitoring internal controls over annual accounts and reports (FDP 2009b). The FDP published information for member institutions and the Belgian public through annual reports, press releases, and pages on its website (FDP 2012a). The FDP had to publish information for depositors and investors, including the names of member institutions whose coverage had ended under the Belgian system, in the event of default, the terms and conditions of compensation to any related party, and the deadlines for payment (FDP 2009a, chap. 5, paras. 64-66).

The Royal Decree of November 14, 2008, established a separate SPF within the Belgian Ministry of Finance under the immediate authority of the minister of finance (King of Belgium 2008, art. 3). The Belgian king had the power to regulate the SPF’s organization and operation (King of Belgium 2008, art. 3). The Belgian king set the conditions, terms, and limitations of reimbursement of the SPF, which maintained the same triggers for default as the FDP (King of Belgium 2008, chap. I, art. 6). In its review of the emergency legislation passed on October 15, 2008, the ECB encouraged the Belgian king to align the SPF’s reimbursement conditions, terms, and limitations with those of the existing FDP (ECB 2008). The Ministry of Finance broadly described the SPF’s activities in its annual reports to Parliament, under sections also describing the Caisse des Dépôts et Consignations’ activities (King of Belgium 2008, chap. I, art. 10).

The Belgian government first announced the guarantee on October 10, 2008 (BFPS 2008a). A follow-up press release on October 12 framed the measure as part of larger efforts to protect domestic bank customers and savers (BFPS 2008b). Observing turbulence in financial markets, the government described the need to preserve confidence in the financial system and strengthen the protection of depositors (King of Belgium 2008).

On October 14, Belgian Prime Minister Yves Leterme presented to Parliament an emergency bill enabling a state guarantee meant to restore confidence (Leterme 2008). Leterme also stressed the need for European member states to cooperate with their neighbors to resolve the international financial crisis (Leterme 2008). He publicly requested that Luxembourgish Prime Minister Jean-Claude Juncker raise Luxembourg’s guarantee to EUR 50,000 and alluded to the thousands of Belgian customers of the Luxembourgish branch of an Icelandic bank, Kaupthing, which had entered bankruptcy the week prior (BFPS 2008b; Leterme 2008; Wintersteller 2013). On October 17, 2008, Luxembourg Minister of the Treasury Budget Luc Frieden announced his government’s plans to increase deposit insurance coverage to EUR 100,000, which took effect on January 1, 2009 (Chamber of Deputies 2010; Frieden 2008).

On November 14, 2008, Belgian authorities raised the coverage level of deposit guarantees to EUR 100,000 per depositor for one year, with the option to extend the policy if necessary (BFPS 2008b). Belgian authorities implemented this change by increasing the FDP’s guarantee from EUR 20,000 to EUR 50,000 and creating the SPF to cover deposit balances between EUR 50,000 and EUR 100,000 (FDP 2009b). The two-tranche financing regime made no functional difference to depositors, but member institutions paid additional contributions to fund the higher coverage (FDP 2009b). The FDP’s expendable funds topped EUR 800 million by year-end 2008. Neither the FDP nor the SPF made payouts from 2008 through 2011, as no further Belgian banks failed (FDP 2009b; FDP 2010; FDP 2011; FDP 2012c). By year-end 2008, the total number of guaranteed institutions was 112, including 59 credit institutions, 23 stock exchange companies, 26 asset managers/investment advisors, and four collective investment companies (FDP 2009b).

The FDP Secretariat was responsible for managing the financial resources needed to conduct interventions (FDP 2009b). FDP resources included contributions from financial institutions after its creation in 1998, investment proceeds, and holdover assets from previous protection systems (FDP 2009b).

The FDP's pool of funds for intervening in member institutions was known as the “intervention reserve” (FDP 2009b). The intervention reserve contained a “common reserve” of contributions paid since 1999 and legacy funds’ contributions prior to 1999; the legacy funds were organized according to the type of member institution (for example, credit institutions and stock exchanges) (FDP 2009b). To pay out a guarantee from the intervention reserve, the FDP drew down assets first from the corresponding legacy fund, then the common reserve, and later other legacy funds within the intervention reserve (FDP 2009b). In 2007, the European Commission estimated Belgium’s deposit funding ratio—available deposit insurance funds relative to outstanding liabilities—at 0.33 percent (Van Nieuwenhuyze and Zachary 2010). As of December 31, 2008, the intervention reserve contained a total of EUR 802.7 million (FDP 2009b). Figure 1 captures the breakdown between common and legacy funds:

FDP membership was compulsory for credit institutions and investment firms, and the Banking, Finance, and Insurance Commission required financial institutions to obtain membership prior to operating in Belgium (FDP 2009b). Insurance companies were not members of the FDP (FDP 2009a, chap. 1). The FDP protected assets held by: (1) a credit institution governed by Belgian law, (2) a bank branch established in Belgium whose host country was outside the EEA and whose coverage was lower than Belgian coverage, and (3) Belgian investment firms authorized to conduct individual portfolio management, including stock exchange companies, portfolio management companies, investment advisors, and collective investment managers (FDP 2009b). FDP membership was optional for EEA-originated bank branches established in Belgium, and they had to first rely on their home countries for protection before receiving supplementary FDP support (FDP 2009a, chap. 3, para. 54).

When Belgian legislators created the SPF, they offered optional membership to insurers of “class 21” life insurance contracts as part of a larger effort to preserve confidence in the financial system (FDP 2012b). Otherwise, SPF membership eligibility was the same as that of the FDP (FDP 2009a, chaps. 1-2; King of Belgium 2008, chap. I, art. 4). Beginning in 2011, SPF membership became compulsory for insurance companies offering class 21 policies, following the passage of a law on December 23, 2009 (FDP 2011).

Clients eligible for FDP protection included natural persons, associations, or small or medium-sized enterprises that had cash deposits with a financial institution (FDP 2009b). Professional investors, large companies,^FThe deposit guarantee applied to institutions able to draw up abridged balance sheets, excluding large companies that had to file full-format balance sheets (Van Nieuwenhuyze and Zachary 2010). “Large” typically referred to firms employing more than 100 workers annually or companies exceeding more than one of the following conditions: A balance sheet totaling EUR ~3.7 million; annual turnover (excluding VAT) of EUR 7.3 million; or
average number of employees totaling 50 workers (Van Nieuwenhuyze and Zachary 2010). public authorities, and persons and parties related to the failed institution were not eligible beneficiaries under the program because the protection system was meant for ordinary savers (FDP 2009b).

Protected clients were entitled to EUR 100,000, regardless of the number of accounts that they had with an institution, and clients’ claims were offset^FThe author was not able to confirm that the Belgian government continued its offset policy from 2008 through June 2022. However, one external reviewer noted that the government would benefit from discontinuing such a policy. The same reviewer argued that the offset policy might incentivize depositors to seek deposit and loan services from separate banks, creating inefficiencies in the payout framework. by outstanding debt with the same institution (FDP 2009b). Assets covered under deposit protection included deposit funds (demand, savings, and term accounts), debt securities (vouchers, bonds, and certificates of deposit) representing deposits,^FRepresentative deposits included debt securities denominated in euros, monetary units of an EU member state, or the Norwegian kroner or Icelandic kronur (FDP 2009b). Debt securities also had to be nonsubordinated, registered, or held in an account or overdrawn deposit with the issuing institution (FDP 2009b). and funds of any currency held by credit institutions and stock exchange companies awaiting return or allocation of financial instruments (FDP 2009b). Besides deposits, the FDP also insured a variety of financial instruments.^FProtected financial instruments included any securities (shares, bonds, special investment funds issued by a third party) held on behalf of clients by a credit institution or stock exchange company (FDP 2009b). The FDP exercised a guarantee on financial instruments when depositors could not recover their assets due to the financial institution's failure (FDP 2009b). Central depositories registered financial instruments to both the credit institution and the depositor, with the latter receiving a direct right of claim, so neither owners nor their assets belonged to any common estate resulting from the financial institution’s insolvency (FDP 2009b). Given the protective measures available to owners of financial instruments, the guaranteed amount was not increased and was maintained at EUR 20,000 (FDP 2009b).

Belgian authorities offered to insure specific life insurance products that attracted the same depositors who used traditional savings products offered by credit institutions, up to EUR 100,000 (FDP 2009b). The SPF could guarantee life insurance contracts subject to Belgian law and designated “class 21,” including those with a fixed yield on the premiums paid, if the issuer opted for protection (FDP 2009b). When a company joined the scheme, its customers benefited from a guarantee up to the surrender value of their life insurance contract (with a maximum payout of EUR 100,000) dated the day prior to the insurer's default (FDP 2009b). The SPF’s coverage of class 21 life insurance products became compulsory in 2011, following the passage of the law on December 23, 2009 (FDP 2011).

Lawmakers expressed the need to protect class 21 life insurance contracts to preserve confidence in the Belgian financial system (FDP 2012b). According to an official close to the matter, the Belgian government guaranteed class 21 life insurance products in exchange for cooperation by bancassurer Ethias, a large Belgian insurance company, during the rescue of Dexia, a systemically important Franco-Belgian financial institution. On September 30, 2008, Ethias increased its capital stake in Dexia by EUR 150 million on September 30, 2008, as part of a multinational effort^FThe Belgian, French, and Luxembourgish governments, along with other key shareholders, injected EUR 6.4 billion in total (Reuters Staff 2008). See Wiggins, Tente, and Metrick (2019b) for more information. to stabilize the latter (Reuters Staff 2008). In return for Ethias’ additional share subscription, the Belgian government guaranteed the class of life insurance that included Ethias’ “FIRST” accounts, which functioned as both life insurance and a savings product. Though the inclusion of class 21 life insurance was mainly meant to secure Ethias in its support of Dexia, the guarantee also benefitted other bancassurers.

Initially, the FDP required members to contribute annually 0.0175% of deposits eligible for compensation, and the SPF required them to pay an additional 0.031% (FDP 2009b). Insurance companies that opted into SPF coverage contributed annually 0.05% of inventory reserves related to protected contracts, plus a one-time entry fee of 0.25% (King of Belgium 2008, chap. I, art. 8).

Following the law passed on December 23, 2009, all FDP and SPF members had to pay a one-time fee of 0.10% and an annual contribution of 0.15% of protected funds, beginning in 2011—the new fees replaced the previous contribution system (FDP 2011). The FDP Management Committee decided not to collect contributions in 2010 (FDP 2011).

A credit institution contested the new contribution system in Belgium’s Constitutional Court and argued that the primary component of the contribution (outstanding eligible deposits) did not indicate risk, so the contribution calculation unfairly targeted credit institutions that financed themselves via deposits rather than capital markets (FDP 2012c). The Court ruled on June 23, 2011, that the single contribution calculation was unconstitutional, so authorities passed legislation on December 28, 2011, that installed risk-based calculations based on solvency, liquidity, and asset quality, beginning in 2012 (FDP 2012c). The SPF’s new contribution was set at 0.10%, adjusted for the contributor's individual risk profile, and increased to 0.245% and 0.15% for the years 2012 and 2013, respectively (FDP 2012c).

The FDP’s payout process had three triggers:

• A member institution declared bankruptcy,
• A member institution suspended payments,^FBelgian documentation uses the term “concordat judicare” (“judicial composition”), referring to a special legal process by which a financial institution imposes a moratorium on payments up to two years to save itself (Cornil 2001). Either the institution or a public prosecutor can initiate judicial composition, and the process presumes that the institution is salvageable once it drafts and follows a recovery plan (Cornil 2001). or
• The CBFA determined that the member could not reimburse its clients’ claims (FDP 2009b).

The FDP had to publish the default and prospective payment timetables (FDP 2009a, chap. 2, para. 37). To receive the FDP’s payout, depository institutions had to apply for assistance within two months of default (FDP 2009a, chap. 2, para. 38). The FDP had to complete payouts within three months of default, and the CBFA could extend this timeline by up to three three-month periods for deposits (FDP 2009a, chap. 2, paras. 41-42). The FDP could withhold payments if the member had committed fraud, made false claims about its guarantee, or failed to share information with the FDP (FDP 2009a, chap. 2, paras. 43-44).

The third trigger required the CBFA to proactively declare the member institution’s failure and take preventative measures, including guaranteeing its deposits or securities, to assist in its liquidation, reorganization, or takeover—subject to financial availability and other requirements (FDP 2009b). Authorities could take preventative action only if they believed that doing so would be less expensive than allowing default or if default threatened Belgian monetary, credit, or financial systems (FDP 2009b). In these circumstances, each depositor, investor, or client of the failing institution had the right to compensation for the loss that they would have incurred had the institution failed on its own (FDP 2009b).

Following the passage of a law on December 29, 2010, the Belgian deposit guarantee scheme shortened its payout timeline, beginning 2011, from three months to 20 working days, in line with the EU directives on deposit guarantees (FDP 2011; FPSCPM 2010, chap. 7). The prudential supervisor could extend the payment period by 10 days only under exceptional circumstances (FDP 2011). To better meet the shortened payout timeline, the Belgian government created tools allowing for rapid payment to depositors and designed procedures for the prompt transmission of data about the covered assets eligible for assistance (FDP 2011). The December 2010 law also required the managers of Belgian investor protection systems to regularly test their systems for depositor payout (FPSCPM 2010, art. 59).

The Belgian king set the conditions, terms, and limitations of reimbursement of the SPF, which maintained the same triggers for default as the FDP (King of Belgium 2008, chap. I, art. 6).

SPF members were not permitted to mention protection in their advertising (King of Belgium 2008, chap. I, art. 6). Members who either failed to fulfill obligations to the SPF or transgressed the ban on advertising could lose deposit insurance coverage (King of Belgium 2009, art. 4).

On November 14, 2008, the Belgian king issued a royal decree to raise the coverage level of deposit guarantees to EUR 100,000 per depositor for one year, with the option to extend the policy as needed (BFPS 2008b; King of Belgium 2008). After its promulgation, the November 14 Royal Decree would have expired unless it was confirmed by the Belgian Parliament within 12 months of declaration (ECB 2008; Parliament 2002; Parliament 2008a). On December 22, 2008, the Belgian Parliament confirmed the November 14 Royal Decree through a corresponding program law, making permanent the crisis-time expansion of depositor guarantees (Parliament 2008b). The coverage remains at EUR 100,000 as of June 2022 (FPSF n.d.b).