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Letter of 6 October 2010 to Commissioner Michel Barnier

Letter to Commissioner Barnier concerning the changes adopted to the Deposit Guarantee Schemes Directive (Directive 94/19/EC).

Dear Commissioner Michel Barnier,

I refer to your letter of 2 August 2010 in response to my letter of 11 June 2010 on the subject of the harmonisation of the level of deposit protection provided under the Norwegian deposit guarantee scheme. I also refer to the report, on and proposal for, amendments to the Deposit-Guarantee Schemes Directive presented by the Commission on 12 July 2010.

My letter of 11 June 2010 contained a detailed assessment of the issues of relevance in this matter. However, your reply seems to devote only limited attention to the arguments raised in my letter. The measures outlined in the Commission’s proposal of 12 July 2010, to which you refer in your letter of 2 August, do not provide a solution to Norway’s problem, which is that a deposit guarantee scheme of € 100 000 gives Norwegian depositors a far lower level of deposit protection than they enjoy at present, and would cover a far lower percentage share of deposits in Norway than in the EU.

Norway supports the increase of the coverage level in Deposit Guarantee Schemes within the EU. Norway has good experience with a deposit guarantee scheme with high coverage as an important part of the financial regulation to ensure financial stability. It is in this context – with generally increased deposit guarantee protection both in the EU and in the United States – very unfortunate if Norway should reduce its deposit guarantee protection with 60 per cent.
In your letter of 2 August 2010 you note that “some EU depositors” moved their deposits during the financial crisis in the autumn of 2008. I presume that you are referring in particular to the fact that some depositors in the UK transferred their deposits to Irish banks*,  which was a result of an extraordinary situation in the autumn of 2008 were many countries, including Ireland, issued unlimited State guarantees. Even though the level of deposit protection provided in Norway since 1996 (approximately € 250 000) is significantly higher than the coverage offered by our neighbours Sweden and Denmark (in which the levels of deposit protection have been € 20 000) this difference has not resulted in depositors in Swedish or Danish banks shifting their deposits to Norwegian banks – not before and not during the financial crisis. My Swedish and Danish colleagues have both confirmed this. In this connection, I mention that a recent OECD report (Financial Market Trends 2/2009**) showed that Norway was the only country in the EU/EEA with a deposit guarantee scheme that was good enough for the scheme not to need to be extended or for State guarantees to be furnished in the crisis in the autumn of 2008.

It is also important to appreciate that in Norway the use of bank deposits as a form of investment (savings) varies greatly from the situation applicable in the EU. As I discussed in detail in my letter of 11 June 2010, almost all Norwegians hold bank accounts in one or more banks. This is true irrespective of age, and it is also the case for children of all ages. Accordingly, average deposits in eligible bank accounts are ”low”, but what is essential to note when comparing the situation for Norway relative to the European Union, is the following fact: The total amount of eligible deposits covered by the guarantee scheme as a percentage of the total amount of eligible deposits is much lower in Norway than in the EU. In Norway, only 47 per cent of eligible deposits would be covered (guaranteed) by a guarantee scheme covering deposits up to € 100 000. This is a substantially lower proportion than in the EU, where as much as 72 per cent of eligible deposits are covered (according to the Impact Assessment of 12 July 2010) and much lower than in any other country in EU. The situation is therefore – as we see – completely different in Norway (47 per cent) compared with the EU (72 per cent). The situation (per cent coverage) is nearly the same for both EU-15 and EU-12. It is probable that the present coverage of € 250 000 must be more than doubled to reach a coverage level in Norway of 72 per cent. This further underlines the fact of the comprehensive use of bank savings in Norway.

I should add that even at the current level of deposit protection in Norway of NOK 2 million (approximately € 250 000) per depositor per bank, only 58 per cent of eligible deposits in Norway are covered under the deposit guarantee scheme. In other words, approximately the same percentage of eligible deposits is covered in Norway at a level of € 250 000 as is covered in the European Union at a level of protection of € 50 000 – a level of protection that, according to the Commission, is too low considering the percentage share of deposits covered.

I would also like to point out that the United States FDIC standard insurance amount is now $ 250 000 (approximately € 200 000) per depositor per bank. About 71 per cent of eligible deposits are covered by the FDIC insurance, according to the FDIC Quarterly Banking Profile published 30 June 2010.

As I have already pointed out, it is of considerable importance to Norway to retain the level of protection provided at present under the deposit guarantee scheme. Hence it is important that the Commission accept an adaptation text in connection with the relevant processes involved in incorporating Directive 2009/14/EC in the EEA Agreement, to enable Norway to retain the deposit guarantee cover of NOK 2 million (approximately € 250 000) per depositor per bank. Again, as stated in my letter of 11 June 2010, to counteract any potentially distortive effects on competition, we are prepared to combine the continuation of a protection level of NOK 2 million (approximately € 250 000) with topping-up and export-ban measures, and are willing to give the topping-up and export-ban measures that wordings, which should be proposed by the Commission, and in a such way that no distortion in competition can take place, neither in a normal situation nor in a crisis situation.

Our officials and members of the Government are available for meetings with you in Brussels on this matter. I will be able to meet you after mid October.

Yours sincerely,

Sigbjørn Johnsen


*Impact Assessment (published 12 July 2010), which discusses this issue on page 9.
**The relevant document is available online at www.oecd.org