State Law Office officials Demetris Lysandrou told MPs that the directive should have been approved by last July and that Cyprus has already received a warning over the delay.
Directive 2014/49 effectively updates the original DGS directive adopted in 1994.
The financing of schemes was left entirely to member states, which turned out to be disruptive for financial stability and the proper functioning of the Internal Market, when the financial crisis hit in autumn 2008.
Therefore the Council decided that the level of deposit protection should be gradually but quickly increased in the EU.
A March 2009 directive required member states to increase coverage of their DGS – first, to at least €50,000, and then, to a uniform level of €100,000 by the end of 2010.
The new directive confirmed that €100,000 is an appropriate level of protection and provides that the DGS must be able to fund at least 0.8 per cent of covered deposits by 2024.
The scheme will be financed by a country’s banks according to their size but there are also risk-based criteria.
Riskier banks imply a higher likelihood of failure and, in turn, the need to trigger DGS. Such banks should therefore, pay more contributions to DGS.
A new improvement ensures that banks willhave to pay in tothe schemes on a regular basis (ex ante), and not only after a bank failure (ex post).
During discussion of the issue before the House Finance Committee, MPs raised questions over the decision to bail out Laiki Bank in 2012.
At the time, MPs said, they were told that failure to approve the €1.8 billion bailout, would mean unruly collapse and €7.5 billion in deposits under €100,000 would have to be footed by the state.
On Monday, MPs were left with the impression that that was not the case.
MP Yiannos Lamaris, whose party was in power at the time, said discussion proved “that the state has no responsibility (over insured deposits). If we knew, our decisions possibly would have been different.”
The lender was restructured a year later and none of the insured deposits were lost, unlike those over €100,000.
A banking source said there were no EU countries with a DGS that had enough cash to compensate depositors of a systemic bank in case of bankruptcy.
It is understood that Cyprus’ fund had around €100 million.
The source suggested that the state could eventually be forced to compensate depositors.
He said the whole idea behind the banking union, to which Cyprus is party, was to end costly bank bailouts paid by taxpayers.
Systemic banks were now under the Single Supervisory Mechanism, which functions in conjunction of with the Single Resolution Mechanism, tasked with implementing the EU’s Bank Recovery and Resolution Directive.
Insured deposits in Cyprus were €22.5 billion – €13.5 billion in commercial banks and €9 billion in co-ops.
Source: Cyprus Mail