Confidence in the financial system is crucial for an open economy where supply and demand defines the free nature of the market. When financial institutions fail and a bank liquidation may happen in the future, panic must be avoided and public interest protected. Public interest in this scenario means that tax payer input must be avoided and limited protection must be provided to creditors. Such protection is provided for by local deposit guarantee schemes, also referred to as a DGS.

Qualifying creditors are defined by the regulatory and legal framework. In particular in the European Economic Area, such definitions are clarified in a variety of directives and local regulation. Frameworks for DGS coverage include but are not limited to 2014/39/EU, 2009/14/EC, 91/308/EEC, 89/646/EEC, and 77/780/EEC.

Depositor protection does not guarantee the repayment of every singular deposit. Claimants must therefore closely study the workings of the applicable DGS. In cross-border bank failure and liquidation, the application to a domestic DGS follows the jurisdiction of the account. It also follows that a rejection to the DGS claim being filed is final and second opinions rarely overturn the decision of the administrative committee.

The outcome of filing a DGS claim is mostly positive. Qualifying creditors receive a maximum insured amount depending on the size of their deposit. Within the European Economic Area, this maximum is capped to 100.000 Euro. Prior to filing the DGS claim with the appropriate authority, creditors should ensure compliance with the applicable rules. The downside of a fast and lax application potentially results in a permanent rejection.

Depositor protection aims to maintain confidence in the financial system by providing qualifying creditors of failing financial institutions with fast access to their insured deposit. Participating financial institutions pay premiums to the DGS administrator and the designated financial institutions periodically inform the DGS administrator about the scope, size and nature of the qualifying deposits.

Initial administrative steps are taken during the account opening process of a bank account. For personal accounts, DGS coverage almost always exist. Yet, corporate accounts of legal persons and offshore companies find justification for the activities in the transactions, their underlying documentation and supporting evidence. The business profile and corporate activities therefore play a crucial role for the bank to determine whether premiums for coverage are paid.

Where DGS coverage exists, administrators check the eligibility of the claim to avoid abuse of the system, impersonation and fraud. As such, supporting evidence of activities and transactions may be requested. Seconds opinions may result in approval or rejection of the claim. The court has no position in the approval or rejection of the DGS claim but can refer the case back to the administrator for reinspection. A negative consequence to filing a DGS claim is therewith mainly the possible rejection of the claim. Furthermore, claim filing follows the jurisdiction of the liquidation procedure. When the appropriate location of a bank liquidation is not agreed yet, jurisdiction results in a choice of forum. However, creditors must realize that premiums paid are the main determinant for coverage.