Experiences from a small compensation case Helena Persson Deposit Guarantee Manager Swedish National Debt Office

Swedish Deposit Insurance - Outline Overview responsibility and legislation Experience from a compensation case Regulatory changes Contingency Planning 2

Swedish National Debt Office Public authority responsible to the Ministry of Finance Providing banking services for the central government Raising loans and managing central government debt Providing state guarantees and loans Managing government support for banks Responsible for the deposit insurance and investor compensation schemes = “Guarantee Authority” 3

Swedish Deposit Insurance EU directive/Swedish Act (1996) 1996: Covers accounts with deposits for immediate withdrawal 2008: Also covers accounts for fixed term deposits 2011: SNDO approves accounts covered Compensation level (2006: SEK , 2008: SEK : SEK /EUR ) 2010: EUR Both actual holdings and accrued interest Per depositor and institute 4

Swedish Deposit Insurance Pay out period 1996: 3 months 2010: 20 working days Pay box (“plus” if including SNDO bank support mandate) Trigger points 1996: Bankruptcy 2010: Also if decided by the FSA Preparations 1996: No access to data before bankruptcy 2010: Possible to receive data when asked 5

Swedish Deposit Insurance All institutes with a permit from the FSA to take on deposits are automatically covered by the Deposit Insurance Member institutes supervised by the FSA 140 members (banks, credit market companies, securities companies) Ex-ante funding 6

Member institutes holding covered deposits pay an annual fee. The total fee is 0,1% of covered deposits million SEK (2013). Over time the fee shall finance the scheme in full (including our administration costs). All fees are transferred to a fund. No target level. 7

Fund management Government bonds (up to 10 years maturity) or interest bearing account 28,3 billion SEK (31 December 2012) (approx. 2,2% of covered deposits) Unlimited possibilities to borrow from the state by law 8

Three compensation cases 2 failures in 2006 Custodia depositors - SEK 135 million Allmänna kapital depositors - SEK 41 million 1 bank failure in 2010 Capinordic Bank – branch of Danish Bank - Topping up arrangement - Administered by the Danish DIS - Payment from the Swedish DIS SEK 10,6 million 9

Compensation cases in 2006 Allmänna Kapital »Organized data and few customers »Easy payout Custodia »Several technical and operational problems »Much to learn from this case 10

Custodia Investigation by the Swedish FSA Lack of internal rules and procedures Revoke of license Bank run 11

Custodia Significant time before the guarantee could come into effect Company appealed decision to court – avoid liquidation Paid the most persistent depositors Court rejected appeal – company appealed to higher court Bankruptcy 8 months after FSA’s decision 12

Custodia Extended payment period for reimbursements No access to IT-system before bankruptcy Verification of accounts Investigation of database Apply to court for extension of payment period + 3 months 13

Custodia – Practical problems Bankruptcy only trigger No access to the company’s IT-system Uncertainty about quality of data Uncertainty about covered accounts Swedish Commission 14

New regulations 2010 Decision from FSA to trigger the deposit guarantee IT-system requirements Mandate to request information about depositors from institutes Institutes are required to provide information about depositors without delay Institutes must apply for accounts 15

Experiences - Custodia Bank run caused by the decision to revoke the license Significant time before the guarantee could come into effect Difficult to verify the depositors’ accounts FSA can decide for the deposit guarantee to come into effect Authority to provide information about covered accounts Quality requirements for IT-system Access to depositor data at any time Problems Solutions 16

Contingency Planning SNDO since employees at the Financial Stability & Consumer Protection Department Separate legal, communication, back office and IT-resources Stand by working force within the SNDO Agreements signed with external staff agencies Possibility to use external call center Contingency plan 17

Contingency Planning IT-system developed in-house Institutes required send depositor information Periodic tests of the institutes’ files Periodic training of staff 18

International Cooperation European Forum of Deposit Insurers (EFDI) International Association of Deposit Insurers (IADI) 19

Thank you!