Account Guarantee Programs
France: Deposit Guarantee Fund
Purpose
To enhance confidence in the banking system, compensate depositors, and comply with a European Union directive
Key Terms
- Launch DatesAnnouncement: September 29, 2010; Authorization: September 29, 2010; Operation: September 29, 2010
- End DateChanges to the deposit-insurance system adopted permanently
- Eligible InstitutionsAll deposit-taking institutions in France
- Eligible AccountsA variety of deposit accounts held in eligible institutions
- FeesDiffered according to an institution’s risk profile
- Size of GuaranteeEUR 100,000
- CoverageUSD 1.2 trillion in 2010
- OutcomesNo failures as of February 2012
- Notable FeaturesThe FDG was privately administered, though it was subject to a variety of public controls
In October 2008, during the Global Financial Crisis (GFC), European Union (EU) officials urged member states to raise their minimum deposit-insurance coverage to at least EUR 50,000 (USD 68,000) to promote confidence in banks. France did not need to increase its deposit-insurance cap to meet this target, as it already guaranteed EUR 70,000. The following year, EU officials passed a directive that required all member states to permanently increase their minimum deposit-insurance coverage to EUR 100,000 by December 31, 2010. French authorities complied with the EU’s directive on September 29, 2010. The Fonds de Garantie des Dépôts (FGD), a private administrator, oversaw France’s deposit guarantee. Membership was mandatory for all deposit-taking institutions, and they paid risk-based fees to the FGD. The FGD covered most deposit types. As of February 2012, the FGD had not been activated in response to any bank failures.
During the Global Financial Crisis (GFC), European Union (EU) authorities took a number of measures to reassure markets (IMF 2009a). On October 7, 2008, the EU's Economic and Financial Council urged member states to increase their deposit-insurance coverage to EUR 50,000 (USD 68,000) (EC 2008).FNOn October 7, 2008, EUR 1 = USD 1.36, per Yahoo Finance.The G-7 also adopted a statement on October 10, 2008, urging countries to have sound deposit-insurance schemes (G-7 2008). This prompted several European countries to increase their deposit-insurance coverage.
However, France did not need to increase its deposit-insurance cap to meet this target, as it already guaranteed EUR 70,000 (FGD 2007c). The French government did take other actions to promote financial stability, including recapitalization programs and refinancing operations (IMF 2010; Fang 2020; Jeffereis 2021). During the early stages of the GFC, the French government gave some indication that it was willing to stand behind all deposits, but such a guarantee was never codified (FSB 2012).
The Fonds de Garantie des Dépôts (FGD), a private administrator, oversaw France’s deposit guarantee (FGD 2007g). The FGD also administered two other guarantees on securities and warranties (FGD 2007e).FNThe FGD defined guaranteed warranties as those “required by law or regulations undertaken by a credit institution on behalf of individuals or legal entities under private law” (FGD 2007f). The FGD was subject to public regulation and controls. For instance, the FGD’s bylaws needed approval from public authorities (FSB 2012). Membership was mandatory for all deposit-taking institutions, and they paid fees to the FGD. Fees varied according to the risk profile of individual banks. The FGD covered most deposit types. It excluded foreign-currency deposits of states not part of the European Economic Area (FGD 2007h).
In March 2009, the EU adopted the October 2008 proposal as a directive, requiring all member states to increase their deposit-insurance coverage first to EUR 50,000, and then to EUR 100,000 by December 31, 2010 (EC n.d.; EP/EC 2009). To comply with the EU’s directive, on September 29, 2010, French authorities increased the deposit-insurance limit to EUR 100,000 (Republic of France 2010). This change was meant to be permanent. In 2010, scholars reported that the FGD insured USD 1.2 trillion; they also reported that the FGD’s deposit-insurance fund was valued at USD 2.5 billion (Demirgüç-Kunt, Kane, and Laeven 2014). In February 2012, the Financial Stability Board (FSB) reported that the FGD had not been activated to address any bank failures to date (FSB 2012).
As of January 2022, the French deposit-insurance limit remained EUR 100,000 (FGDR n.d.). Legislation passed in 2013 converted the FGD into the Fonds de Garantie des Dépôts et de Résolution (FGDR), granting the FGD greater resolution powers (FSB 2013).
In light of the GFC, the International Monetary Fund (IMF) recommended that EU member states harmonize and improve their deposit-insurance systems (IMF 2008; IMF 2009a). The IMF praised France in 2009 for supporting these efforts (IMF 2009b).
The IMF, however, said that the FGD’s funds were limited compared to the deposits it insured (IMF MCMD 2013). The IMF thus recommended gradually increasing the FGD’s funding and establishing a pre-agreed financing backup in case other avenues of funding were unavailable. The IMF also criticized the FGD for not having rules governing the speed of reimbursement. It also said that having private bankers on the FGD’s governance board could create conflicts of interest and might make government authorities hesitant to inform the FGD about potential interventions. To alleviate these concerns, the IMF recommended taking action to reduce the conflict of interest and formalized information-sharing arrangements with French authorities.
In 2012, the FSB recommended that France conduct simulation exercises to ensure payout readiness, given that the FGD had not been activated (FSB 2012). In 2019, the IMF reported that the FGDR had developed procedures to fulfill its mandate and test its payout readiness (IMF MCMD 2019). The IMF also suggested peacetime activities to ensure a speedy payout, including harmonizing information technology systems between banks and the FGD, among others. In a 2013 report, the FSB praised the FGD as largely compliant with the International Association of Deposit Insurers’ (IADI) recommendations (FSB 2013).
Key Design Decisions
Purpose1
In response to the Global Financial Crisis (GFC), on October 7, 2008, the European Union (EU)’s Economic and Financial Council urged member states to increase their deposit-insurance coverage to EUR 50,000 (EC 2008). Many EU member states increased their deposit-insurance coverage in response to this guidance (IMF 2009a).
France’s deposit-insurance cap was already at EUR 70,000, and it did not change that cap in response to the EU’s recommendation (IMF 2009b). On October 3, 2008, during a speech to the ruling Union for a Popular Movement (UMP) party, then prime minister François Fillon indicated that the French government was willing to guarantee all deposits, but such a guarantee was never codified or took effect (FSB 2012; Willard 2008).
In March 2009, the EU adopted the October 2008 proposal as a directive, requiring all member states to increase their deposit-insurance minimums first to EUR 50,000, and then to EUR 100,000 by December 31, 2010 (EC n.d.; EP/EC 2009). To comply with this directive, on September 29, 2010, French authorities increased their deposit-insurance coverage to EUR 100,000 (Republic of France 2010). French authorities reported to the Financial Stability Board (FSB) that the change was also a response to competitive international pressures arising from other jurisdictions that had increased their deposit-insurance coverage (FSB 2012).
Part of a Package1
The French government took several measures to promote financial stability during the GFC. Following the failure of Lehman Brothers in September 2008, French officials placed Lehman’s French subsidiary under state administration (IMF 2009b). The government established a capital-injection program and cooperated with Belgium and Luxembourg to recapitalize and guarantee Dexia, a systemically important bank (Jeffereis 2021). A bank-refinancing program was also created with the goal of maintaining market liquidity (Fang 2020).
Legal Authority1
The Fonds de Garantie des Dépôts (FGD) was created on June 25, 1999, according to Article L. 312-4 of the Monetary and Financial Code (FGD 2007g). The Monetary and Financial Code laid out the structure of the FGD (FGD 2007e). Further regulations were adopted in 1999, which established the maximum amount of compensation, payout terms and conditions, and the specifics of the FGD’s financial resources (FGD 2007h; FGD 2007i).
On March 11, 2009, the European Parliament and the European Council passed 2009/14/EC, which required all EU member states to increase their deposit-insurance coverage to EUR 100,000 by December 31, 2010 (EP/EC 2009). France complied with the directive on September 29, 2010, when minister of the economy, finance, and industry Christine Lagarde issued a bylaw, a ministerial decree that is not subject to legislative involvement (Republic of France 2010; Republic of France 2018). The bylaw raised the coverage level to EUR 100,000.
Administration1
The French Monetary and Financial Code established the FGD. The FGD, however, was privately administered (FSB 2013). It was subject to public regulation and control, including the establishment of the FGD’s deposit-insurance limit (FSB 2012). The FGD’s internal rules required approval from the French minister of the economy, finance, and industry. These internal rules were of particular importance in establishing the legal operating procedures of the FGD, which the Monetary and Financial Code left up to the FGD’s supervisory board (FGD 2007e; FGD 2007g).
The supervisory board oversaw the deposit-insurance fund, setting its regulations and policies, which were then approved by the minister of the economy, finance, and industry (FGD 2007g). The supervisory board approved the FGD’s accounts and appointed auditors. The supervisory board was a 12-member board, with four members representing credit institutions, two members representing banking institutions tied to the state, and six members representing non-credit institutions. The supervisory board’s decisions were passed by a simple majority vote. The voting rights of each member depended on the financial contributions that each class of institutions made to the FGD, with credit institutions having more voting power than other institutions. The Financial Audit Office could also audit the FGD.
The management board was a three-member body, whose chairman was appointed by the supervisory board and the minister of the economy, finance, and industry (FGD 2007g). The management board submitted the FGD’s financial statements and set out the communication procedures for member institutions (FGD 2007e).
The FGD could receive consultations from various individuals, including the minister of the economy, finance, and industry and the governor of the Banque de France.
The FGD could not trigger the exercise of its guarantee. That was the responsibility of the banking regulator—then the Commission Bancaire, today the Autorité de Contrôle Prudentiel et de Résolution (ACPR) (FSB 2013; FGD 2007b). Once the relevant authority triggered the FGD’s exercise, the FGD would receive depositor data.FNThe ACP was created in January 2010 as an independent administrative authority operative under the Banque de France (ACP 2010). The ACP merged various institutions, including the French Commission Bancaire (ACP 2010). It is now the Autorité de Contrôle Prudentiel et de Résolution (ACPR) (ACPR 2017a; ACPR 2017b).
Governance1
Prior to August 2003, the banking and finance committee, along with the minister of the economy, finance, and industry, exercised oversight functions over the FGD (FGD 2007e; Jeulin n.d.). The banking and finance committee was replaced on August 1, 2003, by the banking and financial regulation advisory committee, which provided opinions on draft texts before their adoption. The minister of the economy, finance, and industry, with advice from the banking and financial regulation advisory committee, was responsible for determining the maximum level of compensation for depositors, the rules governing payouts, annual fees, and the appointment procedure for the supervisory board (FGD 2007g).
Communication1
French authorities communicated to the Financial Stability Board (FSB) that the increase in the FGD’s deposit-insurance cap was a response to the EU’s directive and competitive international pressures. The FSB also highlighted that the FGD communicated with depositors through multiple channels, including through its website, oral and written information, and information provided by banks. Though never implemented, in October 2008, the French government signaled that it was willing to back all deposits (FSB 2012; Willard 2008).
Size of Guarantee1
Prior to September 29, 2010, the FGD guaranteed up to EUR 70,000 per depositor per eligible institution (FGD 2007c). However, an EU directive in March 2009 required all member states to increase their deposit-insurance cap to EUR 100,000 by December 31, 2010 (EP/EC 2009). France issued a bylaw on September 29, 2010, effective immediately, to comply with this directive, increasing deposit-insurance coverage to EUR 100,000 (Republic of France 2010).
By year-end 2010, the FGD had EUR 2 billion in assets, roughly equivalent to 0.2% of its total covered deposits. Scholars estimated that this fund was used to cover USD 1.2 trillion in deposits (Demirgüç-Kunt, Kane, and Laeven 2014).FNAccording to the IMF’s estimates, the FGD covered EUR 952.4 billion at year-end 2010 (IMF MCMD 2013). IMF officials predicted that, following EU guidance on deposit-insurance, the fund would increase its target level significantly, to between EUR 8 billion and EUR 10 billion (IMF MCMD 2013).
By year-end 2017, the FGDR had EUR 3.6 billion in assets for deposit coverage, with a target ratio of 0.5% of covered deposits (IMF MCMD 2019). The FGDR also had a credit backstop from a seven-bank syndicate for EUR 1.4 billion, allowing it to meet its target fund ratio.
During the early stages of the GFC, the French government gave some indication that it was willing to guarantee all deposits, but such a guarantee was never codified or took effect (FSB 2012).
Source and Size of Funding1
The FGD’s deposit-insurance fund was primarily funded through fees paid by member institutions (FGD 2007g). Fees varied according to the risk profile of individual banks. The FGD could invest its deposit-insurance funds in a wider set of products, compared to other deposit-insurance agencies, which could only invest in government or central bank instruments (FSB 2012).
As backup sources of funding, the FGD could borrow money or levy additional premiums on member institutions (FGD 2007g; FGD 2007i). The FGD did not have a government-funding backstop (IMF MCMD 2013). In 2010, scholars reported that the FGD’s fund was valued at USD 2.5 billion (Demirgüç-Kunt, Kane, and Laeven 2014). This fund was used to cover USD 1.2 trillion in deposits.
Eligible Institutions1
Membership in the FGD was mandatory for all licensed deposit-taking institutions in France (FGD 2007g). Branches of foreign credit institutions not covered by a guarantee in their country of domicile were also required to join the FGD. Foreign bank branches that received coverage in their domicile country could also receive supplementary coverage from the FGD by way of an agreement with the FGD (FGD 2007j). French branches operating in foreign countries could receive coverage from the FGD insofar as they did not receive coverage from another state.
By year-end 2010, the FGD insured 651 deposit-taking institutions (IMF MCMD 2013).
Eligible Accounts1
According to Article L. 312-4 of the Monetary and Financial Code, the FGD covered deposits (FGD 2007g). French regulation defined “deposits” as “credit balance resulting from funds left in an account or from temporary situations deriving from normal banking transactions which a credit institution must repay under the legal and contractual conditions applicable, particularly in clearing arrangements” (FGD 2007h). The FGD’s guarantee excluded deposits held by other credit institutions, insurance companies, and investment companies.
French Regulation 99-05 also excluded deposits in currencies others than those of member states in the EU. The guarantee did not cover debt securities.
Fees2
The FGD was funded by fees levied on eligible institutions (FGD 2007g). These fees varied according to the institution’s respective risk profile, which was determined by the minister of the economy, finance, and industry. French regulation stipulated that these fees could not endanger the stability of the banking system and that institutions needed to pay their fees in a single installment (FGD 2007i).
If the FGD’s obligations exceeded its funding, the FGD could levy additional fees on FGD-insured institutions (FGD 2007i). While the FGD was not activated, the FGD did levy these additional fees (FSB 2012; IMF MCMD 2013). To cope with the coverage increase from September 2010, the FGD levied EUR 270 million in fees to ensure that its funds were not depleted. Member institutions paid this fee in three annual installments.
Process for Exercising Guarantee1
The French Monetary and Financial Code set out three conditions under which the FGD would be activated: if the Commission Bancaire, or later the ACPR, determined that an eligible institution was no longer able to meet its redemptions; if the Commission Bancaire determined that an institution was at a high risk of being unable to fulfill its redemptions; or if a national body—namely, commercial courts—asked the FGD to assume the costs associated with maintaining the solvency of an institution (FGD 2007b; FGD 2007g). The FGD could not refuse to intervene when called upon (FGD 2007a).
Once the FGD’s exercise had been triggered, the FGD would receive depositor and prudential information, usually immediately (FSB 2012; FGD 2007b). The FGD would then send a letter to all of the institution’s depositors explaining the procedures and rules governing the FGD’s exercise. The FGD would identify the depositors who required compensation and inform depositors of their respective amounts. The depositor could either accept the FGD’s compensation or contest the compensation within 15 days. The FGD would then pay out depositors, either by bank transfer or check. The FGD would liquidate the failed institution and utilize these funds to repay the deposit-insurance fund (FGD 2007g; FGD 2007d). The FGD could also take legal action against a failed institution’s executives to secure some or all of the repaid funds.
The FGD’s payout process usually lasted 20 to 30 days (FSB 2012). French regulation required the FGD to repay depositors within a two-month period, though the FGD could request an additional extension of up to four months (FGD 2007b).
Other Restrictions1
Other than fees, there were no additional conditions associated with the FGD’s guarantee.
Duration1
The changes to the French deposit-insurance cap were adopted as permanent changes (Republic of France 2010; FSB 2012). As of January 2022, the French deposit-insurance limit remains EUR 100,000 (FGDR n.d.). In 2013, French authorities passed legislation to convert the FGD into the Fonds de Garantie des Dépôts et de Résolution (FGDR), granting the FGD greater resolution powers (FSB 2013).
Key Program Documents
(ACP 2010) Autorité de Contrôle Prudentiel (ACP). 2010. “The ACP: An Overview.”
Overview of the ACP.
(ACPR 2017a) Autorité de Contrôle Prudentiel et de Résolution (ACPR). 2017a. “Historique de l’ACPR.” Banque de France, last modified August 11, 2017.
Web page describing the history of the ACPR.
(ACPR 2017b) Autorité de Contrôle Prudentiel et de Résolution (ACPR). 2017b. “Qu’est-ce que l’ACPR?” Banque de France, last modified December 10, 2021.
Web page describing the ACPR and its functions.
(EC n.d.) European Commission (EC). n.d. “Deposit Guarantee Schemes,” accessed December 15, 2021.
Web page explaining deposit protection coverage in EU member states.
Key Program Documents
(FGD 2007a) Fonds de Garantie des Dépôts (FGD). 2007a. “Curative Intervention,” last modified February 23, 2004.
Web page discussing when the FGD’s guarantee would be activated.
(FGD 2007b) Fonds de Garantie des Dépôts (FGD). 2007b. “Compensation Procedure,” last modified June 7, 2006.
Web page discussing France’s compensation procedure.
(FGD 2007c) Fonds de Garantie des Dépôts (FGD). 2007c. “Deposit Guarantee,” last modified July 6, 2006.
Web page outlining France’s deposit-guarantee scheme.
(FGD 2007d) Fonds de Garantie des Dépôts (FGD). 2007d. “Recovering Losses,” last modified July 7, 2006.
Web page discussing how the FGD recovers losses after a bank failure.
(FGD 2007e) Fonds de Garantie des Dépôts (FGD). 2007e. “Structure of FGD,” last modified July 7, 2006.
Web page outlining the FGD’s structure.
(FGD 2007f) Fonds de Garantie des Dépôts (FGD). 2007f. “Warranties Guarantee,” last modified July 7, 2006.
Web page discussing the FGD’s warranties guarantee.
(Jeulin n.d.) Jeulin, Arnaud. n.d. “Définition Comité Consultatif de la Réglementation Bancaire et Financière.” Mataf, accessed April 8, 2022.
Web page describing the French Banking and Financial Regulation Advisory Committee.
(Republic of France 2018) Republic of France. 2018. “Qu’est-ce qu’un arrêté?,” last modified June 30, 2018.
Web page explaining bylaws’ function in the French system.
Key Program Documents
(EP/EC 2009) European Parliament and European Council (EP/EC). 2009. “Directive 2009/14/EC of the European Parliament and of the Council of 11 March 2009 Amending Directive 94/19/EC on Deposit-Guarantee Schemes as Regards the Coverage Level and the Payout Delay.” Official Journal of the European Union 68/3, March.
Directive requiring EU member states to update their deposit-guarantee systems, in accordance with principles established by the ministers of finance.
(FGD 2007g) Fonds de Garantie des Dépôts (FGD). 2007g. “Book III: Services.”
Law governing the French deposit-insurance system.
(FGD 2007h) Fonds de Garantie des Dépôts (FGD). 2007h. “Regulation 99-05 of 9 July 1999.”
Regulation governing the FGD.
(FGD 2007i) Fonds de Garantie des Dépôts (FGD). 2007i. “Regulation 99-06 of 9 July 1999.”
Regulation governing the FGD.
(FGD 2007j) Fonds de Garantie des Dépôts (FGD). 2007j. “Regulation 99-07 of 9 July 1999.”
Regulation governing the FGD.
(Republic of France 2010) Republic of France. 2010. “Arrêté du 29 septembre 2010 relatif au niveau de garantie et au délai de remboursement du Fonds de garantie des dépôts.”
Bylaw increasing France’s depositor coverage.
Key Program Documents
(Willard 2008) Willard, Anna. 2008. “France Seeks EU Unity on Crisis Before Meeting.” Reuters, October 3, 2008.
Article discussing France’s potential unlimited guarantee.
Key Program Documents
(EC 2008) European Council (EC). 2008. “2894th Council Meeting Economic and Financial Affairs, Luxembourg, 7 October 2008.” Press release no. C/08/279. 2894th Council meeting, Luxembourg.
Press release summarizing the Council’s coordinated response to the GFC.
(G-7 2008) Group of Seven (G-7). 2008. “G-7 Finance Ministers and Central Bank Governors Plan of Action.”
Statement by the Group of Seven countries outlining their response to the GFC.
Key Program Documents
(FSB 2013) Financial Stability Board (FSB). 2013. “France 2013 IMN Survey of National Progress in the Implementation of G20/FSB Recommendations.”
Review of reforms taken in light of recommendations.
(IMF 2008) International Monetary Fund (IMF). 2008. “Euro Area Policies: 2008 Article IV Consultation: Staff Report; Staff Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Member Countries.” IMF Country Report No. 08/262, August 2008.
Review of the Euro Area economy in 2008.
(IMF 2009a) International Monetary Fund (IMF). 2009a. “Euro Area Policies: 2009 Article IV Consultation: Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Member Countries.” IMF Country Report No. 09/223, July 2009.
Examines the euro area in light of the Global Financial Crisis.
(IMF 2010) International Monetary Fund (IMF). 2010. “France: 2010 Article IV Consultation: Staff Report; Staff Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for France.” IMF Country Report 10/240, July 2010.
Evaluation of the French economy in 2010.
(IMF MCMD 2013) International Monetary Fund Monetary and Capital Markets Department (IMF MCMD). 2013. “France: Financial Sector Assessment Program—Technical Note on Crisis Management and Bank Resolution Framework.” IMF Country Report No. 13/186, June 2013.
Technical note discussing France’s bank resolution framework.
(IMF MCMD 2019) International Monetary Fund Monetary and Capital Markets Department (IMF MCMD). 2019. “France: Financial Sector Assessment Program-Technical Note-Select Topics in Financial Supervision and Oversight.” IMF Country Report No. 19/325, October 2019.
Technical note examining the French financial system.
Key Program Documents
(Demirgüç-Kunt, Kane, and Laeven 2014) Demirgüç-Kunt, Asli, Edward J. Kane, and Luc Laeven. 2014. “Deposit Insurance Database.” World Bank Policy Research Working Paper, June.
World Bank policy-research working paper providing a comprehensive, global database of deposit-insurance arrangements as of 2013.
(Fang 2020) Fang, Everest. 2020. “French Liquidity Support through the Société de Financement de l’Economie (SFEF) (France GFC).” Journal of Financial Crises 2, no. 3: 681–98.
Case study of French liquidity support in the GFC.
(FSB 2012) Financial Stability Board (FSB). 2012. “Thematic Review on Deposit Insurance Systems.” Peer Review Report.
Paper describing key features and recommendations for deposit-insurance systems following the GFC.
(Jeffereis 2021) Jeffereis, Devyn. 2021. “France Société de Prise de Participation de l’État (SPPE).” Journal of Financial Crises 3, No. 3: 64–87.
Case study of France’s recapitalization program.
Taxonomy
Intervention Categories:
- Account Guarantee Programs
Countries and Regions:
- France
Crises:
- Global Financial Crisis