Slovenia: Unlimited Deposit Guarantee

On October 5, 2008, Germany announced an unlimited deposit guarantee (Gow and Chrisafis 2008). On October 7, 2008, the European Union (EU)’s Economic and Financial Council (ECOFIN) met to coordinate its response to the Global Financial Crisis (GFC) (EC 2008). One of ECOFIN’s recommendations was that EU member states bolster their deposit-insurance systems by guaranteeing at least EUR 50,000 per depositor (EC 2008). A day after the ECOFIN meeting, Austria announced a full guarantee on deposits (AFP Staff 2008). That same day, Slovenia announced that it would enact a similar Unlimited Deposit Guarantee with the goals of protecting depositors and matching guarantees that competing jurisdictions had adopted (Bajuk and Kranjec 2008). On October 14, 2008, Slovenia’s prime minister said in a press conference that the government was not creating the Unlimited Deposit Guarantee because of any major difficulties at Slovenian financial institutions, but rather to restore confidence in the financial system following a stock market sell-off (Republic of Slovenia 2008b).

In addition to the bank-debt guarantee, Slovenia officials adopted other policies to combat the GFC in December 2008, including a recapitalization program, a state loan program, and an asset-protection scheme (Petrovic and Tutsch 2009).

The Slovenian national assembly amended the Banking Act in 2006, updating the deposit-insurance system to bring it into compliance with EU law (Republic of Slovenia 2006c). Articles 310 to 329 of the Banking Act established the structure and regulations of the Slovenian deposit-insurance system (Republic of Slovenia 2006c). Pursuant to Article 310, Slovenia guaranteed EUR 22,000 per depositor (Republic of Slovenia 2006c).

During the GFC, on October 8, 2008, Slovenia’s finance minister and the governor of the Bank of Slovenia (BoS) announced that Slovenia would implement an unlimited guarantee of deposits (Bajuk and Kranjec 2008). To do so, they would amend the Banking Act (Bajuk and Kranjec 2008). Six days later, the prime minister confirmed the government’s plan to propose amendments to the Banking Act in coordination with the BoS (Republic of Slovenia 2008b). He stated that the proposed guarantee would be in effect until at least December 31, 2009 (Republic of Slovenia 2008b).

On November 11, 2008, the Slovenian national assembly approved an amendment to the Banking Act instituting the Unlimited Deposit Guarantee until December 31, 2010 (Republic of Slovenia 2008a). The amendment came into effect on November 20, 2008, a day after its publication in the Official Gazette (Republic of Slovenia 2008a).

In March 2009, the EU adopted Directive 2009/14/EC, which required all member states to increase their deposit-insurance coverage first up to at least EUR 50,000, and then to at least EUR 100,000 by December 31, 2010 (EP/EC 2009). On November 20, 2009, the Slovenian national assembly amended the Banking Act to comply with the EU directive, increasing its standing deposit-insurance coverage to EUR 50,000 (Republic of Slovenia 2009). The law came into effect on December 5, 2009 (Republic of Slovenia 2009). Given that the Unlimited Deposit Guarantee was still in effect, banks were collectively responsible for financing payouts up to EUR 50,000 per depositor upon the failure of an insured bank, with the government covering any amount beyond the initial EUR 50,000 (Republic of Slovenia 2009; BoS 2010b).

On September 28, 2010, the national assembly approved a further expansion of the standing deposit-insurance cap, increasing the guaranteed amount to EUR 100,000 (Republic of Slovenia 2010). The change, meant to comply with Directive 2009/14/EC, came into effect on December 31, 2010, when the Unlimited Guarantee expired (Republic of Slovenia 2010).

The BoS was responsible for administering the Slovenian deposit-insurance system (Republic of Slovenia 2006c). It administered the Unlimited Deposit Guarantee as an extension of its prior statutory powers (Republic of Slovenia 2008a). The BoS was established in 1991, pursuant to the Bank of Slovenia Act (Republic of Slovenia 1991). The BoS was Slovenia’s central bank and was responsible for banking supervision (Republic of Slovenia 2006b). The BoS could collect relevant information and data from individuals or legal persons to perform its duties (Republic of Slovenia 2006b).

The governor of the BoS ran the day-to-day operations of the BoS (Republic of Slovenia 2006b). The governor’s internal acts set out the BoS’s organizational and operational structure (Republic of Slovenia 2006b).

Precrisis, the BoS reported to the national assembly on a half-yearly basis at minimum, including providing it with its annual financial statements (Republic of Slovenia 2006b). The BoS was also required to report to the EU (Republic of Slovenia 2006b). Following the November 2008 amendment to the Banking Act, the government had to report to the national assembly at least once every three months, with the report focusing on the financial situation and measures it had adopted, including the Unlimited Deposit Guarantee (Republic of Slovenia 2008a).

A five-member governing council oversaw the BoS and was composed of the governor of the BoS along with four vice-governors (Republic of Slovenia 2006b). All governing-council members were nominated by the president and approved by the national assembly for renewable six-year terms (Republic of Slovenia 2006b). A representative from the national assembly and the minister of finance could participate in governing-council meetings. The BoS’s governing council was responsible for setting its policies (Republic of Slovenia 2006b). It also selected an external auditor for the BoS (Republic of Slovenia 2006b). Its decisions were published in the Official Gazette of the Republic of Slovenia (Republic of Slovenia 2006b).

The Bank of Slovenia Act required the BoS to share information with the minister of finance, who was responsible for determining the scope and conditions of the BoS’s conduct as an agent of the Republic of Slovenia (Republic of Slovenia 2006b).

The BoS was subject to yearly internal audits (Republic of Slovenia 2006b).

Slovenia’s finance minister and the governor of the BoS announced the Unlimited Deposit Guarantee on October 8, 2008 (Bajuk and Kranjec 2008). They said that the Unlimited Deposit Guarantee was meant to match similar programs adopted in Europe and to protect depositors (Bajuk and Kranjec 2008). They said that the Unlimited Deposit Guarantee would be legislated through amendments to the Banking Act and that the Slovenian financial system was stable and secure, noting that banks in Slovenia had been spared the “significant consequences” associated with the GFC (Bajuk and Kranjec 2008).

On October 14, 2008, Slovenia’s prime minister discussed the Unlimited Deposit Guarantee in a press conference (Republic of Slovenia 2008b). As in the statement made six days prior, the prime minister said that the government would amend the Banking Act and reiterated that the Slovenian financial system was safe, despite deteriorating confidence (Republic of Slovenia 2008b). He further stated that the Unlimited Deposit Guarantee would remain in force until at least December 31, 2009, and that the new measures had been coordinated with the BoS.

According to the 2006 Banking Act, Slovenia insured depositors up to EUR 22,000 (Republic of Slovenia 2006c). In the event a bank failed, other banks were collectively responsible for paying depositors up to the insured amount. With an amendment in November 2008, the Slovenian government enacted the Unlimited Deposit Guarantee, which provided full coverage for the net deposits of depositors (Republic of Slovenia 2008a). According to the amendment, banks remained collectively responsible for covering payouts up to EUR 22,000, with the government responsible for amounts over EUR 22,000 (BoS 2009a; Republic of Slovenia 2008a). If banks were unable to supply the funds required to pay the first EUR 22,000 per depositor, the government would provide coverage (BoS 2009a; Republic of Slovenia 2008a).

Per a 2009 amendment to the Banking Act, banks became responsible for covering the first EUR 50,000 per depositor, with the government covering amounts over EUR 50,000 (Republic of Slovenia 2009; BoS 2010b). The BoS noted that this change increased the obligations of insured institutions but did not affect depositors (BoS 2010b).

In 2010, scholars reported that the Unlimited Deposit Guarantee covered USD 24.4 billion in deposits, USD 12.7 billion of which would have been covered without the Unlimited Deposit Guarantee (Demirgüç-Kunt, Kane, and Laeven 2014). The government thus covered USD 11.7 billion in deposits, while banks were responsible for USD 12.7 billion (Demirgüç-Kunt, Kane, and Laeven 2014).

Source(s) and Size of Funding: Slovenia’s standing deposit-insurance system was ex-post funded, meaning that no fees were collected up-front (Demirgüç-Kunt, Kane, and Laeven 2014). In the event of a bank failure, the BoS assumed the obligation to pay out depositors and then levy fees on banks to contribute the funds required for payouts of up to EUR 22,000 per depositor (BoS 2009a; Republic of Slovenia 2006c).

The amount for which banks were responsible increased to EUR 50,000 following an amendment in 2009 (Republic of Slovenia 2009; BoS 2010b). To ensure that banks could make such payments, all banks were required to maintain investments equal to at least 2.5% of their insured deposits in debt securities that were eligible for collateralization of Eurosystem receivables (Demirgüç-Kunt, Kane, and Laeven 2014; Republic of Slovenia 2006c).

The Slovenian government covered amounts in excess of the insurance cap (BoS 2009a; Republic of Slovenia 2008a). If banks could not supply the funds required by a payout event, the government would provide additional coverage (BoS 2009a; Republic of Slovenia 2008a).

In 2016, Slovenian officials altered the deposit-insurance system to include ex-ante funding (Republic of Slovenia 2016). The BoS administered the altered system and targeted a fund ratio of 0.8% (Republic of Slovenia 2016).

All banks registered with the BoS were required to guarantee their deposits under the Unlimited Deposit Guarantee (Republic of Slovenia 2006c; BoS 2009a). This meant that foreign branches of Slovenian banks were required to receive coverage (Republic of Slovenia 2006c). The BoS was also responsible for determining whether a foreign bank operating in Slovenia would be included in its guarantee scheme (Republic of Slovenia 2006c).

The Unlimited Deposit Guarantee covered all deposits listed in Article 310 of the Banking Act (Republic of Slovenia 2008a). These accounts could be held by individuals or small companies.^FTo qualify as “small,” a company needed to meet two of the following criteria: Average number of employees did not exceed 50; Net sales revenue did not exceed EUR 7.3 million; Value of assets did not exceed EUR 3.65 million (Republic of Slovenia 2006a).

Article 310 also limited which deposit-holders received coverage (Republic of Slovenia 2006c). The program did not insure deposits of banks and financial corporations, those tied to money laundering, those of states or central banks, those made by the BoS’s administrators, and those of medium-size or large companies, among others (Republic of Slovenia 2006c).

Under the Unlimited Deposit Guarantee, in 2010, Slovenia insured USD 24.4 billion in deposits, USD 12.7 billion of which would have been covered without the Unlimited Deposit Guarantee (Demirgüç-Kunt, Kane, and Laeven 2014).

Slovenia’s deposit-insurance system was funded ex-post, in that there were no up-front fees collected from insured institutions (Demirgüç-Kunt, Kane, and Laeven 2014). In a payout event, the BoS would assume the obligation to depositors and levy fees on banks for repayment (BoS 2009a; Republic of Slovenia 2006c). Fees would be proportional to a bank’s insured deposits (Republic of Slovenia 2006c).

Prior to December 5, 2009, fees were charged to fund the first EUR 22,000 per depositor, with the government covering outlays above EUR 22,000 (BoS 2009a; Republic of Slovenia 2008a). Following December 5, 2009, banks were responsible for the first EUR 50,000 per depositor, with the government covering any amounts in excess (Republic of Slovenia 2009; BoS 2010b). If banks were unable to meet this fee levy, the government could cover the payouts (BoS 2009a; Republic of Slovenia 2008a).

To facilitate the payout of depositors, the BoS required all insured institutions to hold assets equal to at least 2.5% of their insured deposits in debt securities eligible for collateralization of Eurosystem receivables (Demirgüç-Kunt, Kane, and Laeven 2014; Republic of Slovenia 2006c). In the event of a payout, these assets could be realized to meet fee levies (Demirgüç-Kunt, Kane, and Laeven 2014).

The Unlimited Deposit Guarantee would be activated when bankruptcy proceedings were initiated against an eligible institution (Republic of Slovenia 2006c). Once the guarantee was exercised, the BoS would appoint a bank as the acquiring bank, which would make depositor payouts (Republic of Slovenia 2006c). The BoS would furnish the acquiring bank with the funds to make depositor payouts and collect fees from other banks (Republic of Slovenia 2006c). Any returns from the bankruptcy estate would be paid to banks according to their paid-in shares (ECB 2008). Depositor payouts could take up to three months from the opening of bankruptcy proceedings against a failed bank (Republic of Slovenia 2006c).

In response to the European Commission’s Directive 2009/14/EC, Slovenian authorities reduced the payout time from three months to 20 days, with the possibility of extension in exceptional circumstances (Republic of Slovenia 2010).

During the GFC, the Unlimited Deposit Guarantee was not exercised, as no banks failed (IMF ED and IMF MCMD 2012).

The BoS required banks to hold assets equal to at least 2.5% of their insured deposits—up to the depositor threshold—in debt securities eligible for collateralization of Eurosystem receivables (Demirgüç-Kunt, Kane, and Laeven 2014; Republic of Slovenia 2006c). These assets would be called upon in the event of a bank failure (Demirgüç-Kunt, Kane, and Laeven 2014).

As a condition of the Unlimited Deposit Guarantee, insured banks were required to report quarterly the balance of guaranteed deposits, which they submitted according to new instructions and forms (BoS 2009a).

On October 14, 2008, Slovenia’s prime minister said that the Unlimited Deposit Guarantee would last until at least December 31, 2009 (Republic of Slovenia 2008b). When the Unlimited Deposit Guarantee was transposed into law, the national assembly set a sunset date of December 31, 2010 (Republic of Slovenia 2008a). The Unlimited Deposit Guarantee ended on December 31, 2010 (BoS 2010a). Following the Unlimited Deposit Guarantee’s expiration, Slovenian depositors received coverage up to EUR 100,000, funded entirely by ex-post levies on other banks (Republic of Slovenia 2010).