Deposits Insurance in Germany

There are branched network of Deposit Insurance funds in Germany:
• Deposit Insurance Fund under private banks;
• Deposit Insurance Fund under savings banks;
• Insurance Fund of cooperative banks.

Central Bank of Germany (Deutsch Bundesbank) doesn’t have direct and significant effect on systems of deposit insurance. All private credit institutions having general licence of Federal Department on control over credit activity and being members of Auditors’ Association of German Banks can participate in Fund. Almost all types of deposits are secured except interbank deposits and also some debt instruments to bearer.
The following is not subject to insurance:
• commitments of bank with regard to their managers and founders presented as physical entity;
• claim to bank by members of its supervisory board;
• claim to bank by direct relatives of above persons.

Quite enough rate of insurance compensation for one depositor – up to 30% from amount of own capital of bank is fixed by the deposit insurance fund. The board of bank association may correct in procedure to collect fees and which has right to:
• suspend the collection of fees after reaching sufficient amount by fund;
• double an amount of fee if means of fund is not enough for measures to improve banks.
For management of insurance fund, Bank association forms special committee consisting of 9 persons, which is responsible for the following tasks:
• decision making about assistance to banks;
• preparing instructions regulating use of fund’s means;
• decision making about amounts of special and lump-sum payments as well as entrance fees of banks in fund;
• submitting financial statement about fund’s activity.
Bank may be excluded from the membership of its participants in case of the following violations of provisions of fund’s charter by the bank:
• failure to submit necessary information to the fund;
• untimely transferring of fixed amounts of fees;
• creation of artificial obstacles for normal auditing;
• concealment of information from bank association by supervisory board;
• submission of wrong information about amount of coverage to third parties;
• open advertising about bank participation in fund and its activity;
• non-observance of instructions and orders of association related to fund activity.
Termination of bank activity in the fund leads to its exclusion from bank association and other way, withdrawal of bank from association leads exclusion from fund’s participants.
Deposit insurance fund of savings banks is supplementary way of depositors’ interests protection, because their special status as organizations being under communities, communal associations, counties and other administrative-territorial units assumes their position at so-called " public expense ", which is reliable guarantee of solvency of savings banks. Liabilities are not taken by funds as base for calculations of fees but assets of savings banks are taken since in crisis situations, means of fund are used for cover of losses due to non-returned loans. Overall amount of regional funds is defined at the rate of 3% of total client claims of savings banks.
As opposed to private banks, saving banks have several insurance funds because the regional principle plays important role for their activity, i.e. clear certain space to carry out transaction.

One more element of protection system for saving banks is insurance funds of land banks establishing rate of 1% of total nonbank deposits. In order to form insurance funds, land banks annually provide 1% out of amount of client deposits until their funds reach 50% of total amount.
Insurance fund of cooperative banks carry out their activity through Union of cooperative banks. It has 10% of all fees on its special account, and 90% - on accounts of regional audit associations that manage these means according to the warrant of the Union. The Bank, which faces difficult financial situation, may be provided with subsidies, interest and noninterest loans, and securities. Necessary extent of guarantees is formed thanking to that cooperative banks takes guarantee obligations to the extent of 60% of amount taking place as a result of correction of bank balance items basing on written requests submitted to sectoral bank union.

German Federal Bank – Bundesbank is the Central Bank in Germany. The procedure to use mandatory reserves by Bundesbank was set in Germany in 1957 under the Law about German Federal Bank.
In Germany, liabilities subject to mandatory reservation include demand accounts and operating accounts, time deposits and savings deposits for the period of up to four years. In addition, involved interbank credits and debts for the period of up to two years are subject to reservation.

Also, in Germany, commitments related to financing of import are excluded from liabilities. Bundesbank uses preferential treatment of minimum reserves with regard to banks located in areas of preferential taxation.

Through changes of rates of mandatory reserves, Bundesbank not only maintain money supply within the fixed target money orientation and regulates liquidity of commercial banks but has effect on flow of foreign capital. So, from September to December 1977, Bundesbank fixed the rate of reserves regarding attracted liabilities from nonresidents to the extent of 80%. Bundesbank used these measures with a view to protect the money- market of Germany from high inflow of foreign capital, which was observed at that time.

In 1994, in order to reduce outflow of foreign capital, German Federal Bank was forced, on the contrary, to significantly reduce the rates of minimum reserves for nonresidents: non-fixed deposit - from 12.1% to 5%, time deposit - from 4.95% to 2%, savings deposits - from 4.15% to 2%.