In today’s global economy, the safety and protection of deposits have become a critical concern for individuals and businesses alike. In Sweden, the Deposit Guarantee Scheme (DGS) offers a vital safety net to foreign account holders, safeguarding their deposits in the event of a bank failure. This essay aims to provide a comprehensive understanding of the Swedish Deposit Guarantee Scheme, covering its origin, scope, coverage, limitations, and the process of reimbursement. By the end of this essay, foreign account holders with deposits in Sweden will have a clear understanding of the protection mechanisms in place and the extent to which their funds are secured.
Origin and Background of the DGS in Sweden
The Swedish Deposit Guarantee Scheme, regulated by the Swedish National Debt Office (SNDO), was established in 1996, following the European Union’s directive on deposit-guarantee schemes (94/19/EC). This directive aimed to harmonize and enhance deposit protection within the European Union (EU) and the European Economic Area (EEA). The DGS is further governed by the Deposit Guarantee Act (1995:1571) and the Deposit Guarantee Ordinance (1995:1572).
Scope of the Deposit Guarantee Scheme
The Swedish DGS covers various types of financial institutions, including banks, savings banks, credit market companies, and certain securities companies. Both Swedish and foreign institutions operating within Sweden’s jurisdiction are subject to the DGS. The scheme applies to deposits made in Swedish Krona (SEK) and other EEA currencies.
Coverage of the Deposit Guarantee Scheme
The DGS provides compensation to depositors in the event of a bank failure, up to a maximum of SEK 950,000 (approximately EUR 100,000) per depositor and institution. This limit is valid for the aggregate of all deposits held by a single depositor, regardless of the number of accounts or branches of the same institution. The following types of deposits are covered under the Swedish DGS: Current and savings accounts; Fixed-term deposits; Salary and pension accounts; and Demand and time deposits.
Although the DGS offers significant protection to depositors, certain limitations and exclusions apply. The following types of deposits are not covered by the scheme: Deposits made by financial institutions; Deposits made by insurance and pension institutions; Deposits made by public authorities; Deposits made by corporations or other legal entities that are not considered small or medium-sized enterprises (SMEs); and Deposits arising from transactions related to money laundering or terrorist financing.
In the event of a bank failure, the Swedish National Debt Office (SNDO) will notify the depositors and initiate the reimbursement process. The SNDO aims to start the payout process within seven working days from the date the institution is deemed unable to meet its obligations. The SNDO may extend the reimbursement period if there are specific reasons or if the case is particularly complex.
Depositors are not required to submit a claim or take any action, as the reimbursement process is automatic. The SNDO will determine the amount payable to each depositor, based on their eligible deposits and the applicable coverage limit.
Compensation will be paid in Swedish Krona (SEK) or, if the depositor so requests, in the currency of the EEA country where the depositor resides. The SNDO may use a conversion rate applicable on the date the institution was declared unable to meet its obligations.