The financial sector in Belgium is characterized by a highly developed banking system, with a mix of domestic and international banks catering to various needs. As with any financial system, there are inherent risks associated with banks operating in the jurisdiction, including credit risk, liquidity risk, and operational risk, among others. To mitigate these risks and protect depositors, Belgium has a Deposit Guarantee Scheme (DGS) in place to safeguard customer deposits in case of bank failure.
The Deposit Guarantee Scheme in Belgium is triggered when a bank is deemed to have failed or is in imminent danger of failing. This determination is made by the European Central Bank (ECB) in collaboration with the National Bank of Belgium (NBB) and other relevant authorities. Upon this determination, the DGS is activated, and the process of compensating eligible depositors begins. The key definitions for activation of the Deposit Guarantee Scheme in Belgium include:
- Bank failure: A bank is considered to have failed when it is unable to meet its financial obligations or regulatory requirements, leading to its license being withdrawn.
- Imminent danger of failure: A bank is in imminent danger of failing when it is highly likely to become insolvent or be unable to meet its obligations in the near future.
The legal framework for bank deposit insurance in Belgium falls under the EU Directive 2014/49/EU on Deposit Guarantee Schemes. This directive was transposed into Belgian law through the Law of 25 April 2014 on the status and supervision of credit institutions and stockbroking firms. The directive sets out the harmonized rules and procedures for deposit guarantee schemes across the European Union, including Belgium.
Operating Body, Coverage and Limitations
The Deposit Guarantee Scheme in Belgium is operated by the Guarantee Fund for Financial Services (GFFS), which is a public institution governed by Belgian law. Its official name in French is “Fonds de Garantie des Services Financiers” and in Dutch, “Garantiefonds voor Financiële Diensten”. The GFFS is located in Brussels, Belgium.
The coverage limit under the Belgian DGS is set at €100,000 per depositor per bank. This means that each eligible account holder is entitled to compensation of up to €100,000 for their aggregate deposits held in a single bank. It is important to note that this limit applies to the total amount of deposits, including accrued interest, across all accounts held with the bank. The coverage limit cannot be exceeded, regardless of the number or type of accounts held by the depositor.
Procedures and Timeframes
When the DGS is triggered, the GFFS will contact eligible depositors directly, informing them about the bank’s failure and providing instructions for filing a claim. Depositors do not need to take any action until they are contacted by the GFFS. The compensation process must begin within seven working days from the date the DGS is triggered, and the funds should be made available to depositors within 20 working days. In exceptional circumstances, this period can be extended by up to 10 working days.
Depositors have a period of five years from the date the DGS is triggered to file their claims. After this deadline, any unclaimed compensation will be forfeited, and the depositor will lose their right to claim under the DGS.
Exclusions and Claim Rejections
Certain types of deposits are excluded from DGS coverage in Belgium. These include deposits made by financial institutions, government authorities, insurance companies, and professional investors, among others. Additionally, deposits stemming from criminal activities or those subject to legal restrictions, such as freezing orders or confiscation, are also excluded from coverage.
In case of unexpected claim rejections, depositors can appeal the decision made by the GFFS. The appeal process typically involves submitting a written request for reconsideration, providing additional information or documentation to support the claim. If the appeal is unsuccessful, depositors may choose to pursue legal remedies through the Belgian court system.
What Happens to the Failed Bank and Other Claims?
Once a bank is declared as failed, the National Bank of Belgium (NBB) initiates the resolution or liquidation process. This process aims to ensure the orderly winding down of the bank’s activities and to minimize potential negative impacts on the financial system. The failed bank’s assets are either sold or transferred to another institution, and the proceeds are used to pay off the bank’s liabilities.
Claims against the failed bank that are not covered by the Deposit Guarantee Scheme, such as those from shareholders, bondholders, and other creditors, are dealt with during the resolution or liquidation process. These claims are ranked in a specific order of priority, as determined by Belgian law, and are paid from the available assets of the failed bank. It is important to note that in many cases, these creditors may only recover a portion of their claims, or in some instances, nothing at all, depending on the available assets and the ranking of their claims.
In conclusion, the Deposit Guarantee Scheme of Belgium is a crucial safety net for depositors, providing protection and confidence in the country’s financial system. By understanding the coverage limits, procedures, and exclusions, depositors can better manage their finances and mitigate potential risks associated with bank failures.