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Column: It Begins. Germany’s Banks Lower The Deposit Guarantee Scheme. | Sprout Money

November 10, 2014

Column: It Begins. Germany’s Banks Lower The Deposit Guarantee Scheme. | Sprout Money.

In a surprising move, the consortium of German banks has announced that the insured amounts under its mutual deposit guarantee will be lowered from January 2015 on. German newspaper Die Welt broke the news and even though this doesn’t change the state guarantee on deposits on savings accounts, banks seem to be finally giving up the idea that their mutual guarantee scheme will be able to cover collapsing banks.

The importance of this news shouldn’t be underestimated as the fund which has 165 members had to compensate bank clients in 30 cases since it was created, and according to industry experts, the bank fund was a very important reason why bank runs haven’t really occurred in Germany.

Until now, the banks’ mutual fund had to secure and guarantee at least 30% of the equity capital of the institutions, but this ratio will now be reduced to 20% in January 2015 and further reduced to 8.75% in 2025. This means that in for instance Deutsche Bank’s case which had an equity position of $70B, the mutual deposit guarantee scheme would no longer guarantee $21B, but just $6.1B from 2025 on and this is a serious reduction and actually undermines the credibility of the German banking system.

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