Germany adopts new deposit insurance law to implement the DGS Directive


The DGS Implementation Act splits up the existing Deposit Guarantee and Investor Compensation Act (Einlagensicherungs- und Anlegerentschädigungsgesetz – "EAEG”) into two separate acts, the Deposit Guarantee Act (Einlagensicherungsgesetz – "EinSiG”) and the Investor Compensation Act (Anlegerentschädigungsgesetz).

The DGS Implementation Act responded to the DGS Directive passed in June this year, requiring each EU member state to create a deposit insurance fund for the nation's banking sector. The directive specifies that each nation's fund must set aside an amount corresponding to at least 0.8 percent of total bank deposits covered by deposit guarantees. The deposit insurance fund is to be brought up to the required level over the coming ten years, i.e. by 2024.

Currently, depositors are insured up to € 100 000 per authorized deposit. The DGS Directive has confirmed that € 100 000 is an adequate level of protection and this will continue to be the case. Thus, for depositors who have more than € 100 000 in savings at a European bank, a low-risk strategy to avoid the risk of losing money in the event of a bank failure is to maintain accounts at different banks. Only so-called temporary high deposit balance depositors will enjoy greater coverage, i.e. beyond the standard coverage level of € 100.000. Such coverage is insured up to € 500 000. However, this will be limited in time (up to a maximum of 12 months).

The DGS Directive also requires that insured deposits must be accessible for depositors within a specified time frame. Payout deadlines must be gradually reduced from the current 20 working days to 7 working days as of January 1, 2024. However, national banking authorities are free to adopt stronger measures - or to meet the 7-day payout deadline earlier than the 2024 deadline required by the DGS Directive. This is exactly what Germany has done in its draft of the DGS Implementation Act. Starting from May 31, 2016, the maximum permissible time frame for depositors to be paid out their insured savings will drop from the current 20 working days to 7 working days.