Norwegian Banks' Guarantee Fund: Ensuring Depositor Safety

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The Norwegian Banks' Guarantee Fund is a vital safety net for depositors in Norway. The fund is managed by the Norwegian Financial Services Authority.

In the event of a bank failure, the guarantee fund steps in to protect depositors' accounts up to a certain amount, currently set at 2 million kroner. This means that depositors have nothing to worry about, even if their bank goes bankrupt.

The guarantee fund is funded by the banks themselves, with each bank contributing a percentage of its deposits to the fund. This ensures that the fund has sufficient resources to cover potential losses.

Guarantee Fund Structure

The Norwegian Banks' Guarantee Fund has a unique structure, governed by a board of directors appointed by the Ministry of Finance. This board is responsible for the Fund's overall management, including its investment strategy and payout procedures.

The Fund's day-to-day operations are handled by a managing director, who is appointed by the board and is responsible for implementing the board's decisions and managing the Fund's assets.

Origins and Framework

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The Norwegian Banks' Guarantee Fund was established in 1996, a direct result of the banking crisis in the early 1990s that highlighted the need for a robust financial safety net.

The Fund was created to replace previous deposit guarantee schemes that were deemed inadequate in the face of the crisis.

The Financial Institutions Act is the primary law governing the Guarantee Fund, providing a solid foundation for its operations.

The Guarantee Schemes Act supplements the Financial Institutions Act, adding further rules and regulations for the Fund's management and payout procedures.

The laws governing the Guarantee Fund lay down the rules for its funding, management, and payout procedures, ensuring stability and security for the financial system.

Member banks have obligations towards the Fund, as stipulated by the laws governing its operations.

Structure and Management

The Norwegian Banks' Guarantee Fund is a separate legal entity, governed by a board of directors appointed by the Ministry of Finance. This board is responsible for the Fund's overall management, including its investment strategy and payout procedures.

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The Fund's day-to-day operations are handled by a managing director, who is appointed by the board. This person is responsible for implementing the board's decisions and managing the Fund's assets.

The board of directors of the Norwegian Banks' Guarantee Fund is also the board of directors of the deposit guarantee scheme. They exercise the authority prescribed by the rules of the Financial Institutions Act.

Here's a breakdown of the responsibilities of the board of directors:

| Other matters | The board decides on other matters concerning the deposit guarantee fund's activity.

Membership

Membership in the Norwegian Banks' Guarantee Fund is mandatory for all commercial banks and savings banks operating in Norway.

Membership requires the payment of annual contributions to the Fund, which are calculated based on the bank's deposits and risk profile.

These contributions serve as the Fund's main source of funding and are collected annually.

The contributions are invested by the Fund to generate returns, which are then used to pay out guaranteed deposits in the event of a bank's insolvency.

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Banks are required to provide the Fund with information on their deposits and risk profile, enabling the Fund to calculate the contributions and monitor the banks' financial health.

Non-compliance with these obligations can result in penalties, including fines and withdrawal of the bank's license.

The contribution rate is determined by the board of directors, within the limits set by the Financial Institutions Act, and is reviewed annually.

The contributions are calculated based on the bank's deposits, excluding deposits exceeding the guarantee limit and deposits by other banks.

A bank's risk profile is assessed based on its capital adequacy, asset quality, earnings, and liquidity.

The contribution rate is reviewed annually, taking into account the Fund's financial position and the banking sector's risk profile.

Deposit Scheme and Coverage

The Norwegian Banks' Guarantee Fund has a deposit scheme in place to protect depositors in the event of a bank's insolvency. The scheme is mandatory for all banks with a Norwegian licence.

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The guarantee limit is currently set at NOK 2 million per depositor per bank, and is reviewed periodically by the Ministry of Finance. This means that if a bank fails, the Guarantee Fund will cover deposits up to this amount.

To be eligible for coverage, deposits must be up to NOK 2 million per depositor per member institution. This includes current accounts, savings accounts, and term deposits.

The guarantee covers all types of deposits, including principal and interest. It applies to both Norwegian and foreign nationals, and is valid regardless of residence.

Certain deposits are excluded from the guarantee, including deposits by other banks and deposits exceeding the guarantee limit of NOK 2 million. These deposits are not protected in the event of a bank's insolvency.

Here are some key details about the deposit scheme and coverage:

The Norwegian Banks' Guarantee Fund is committed to ensuring that deposits are disbursed to depositors in the event of a bank's insolvency. The fund works closely with Finanstilsynet and other authorities to achieve this goal.

Payout and Reimbursement

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The Norwegian Banks' Guarantee Fund has a clear process for payout and reimbursement. Depositors can expect to receive their guaranteed deposits within a few weeks of a bank's insolvency.

The fund guarantees deposits up to NOK 2 million per depositor per bank, covering both principal and interest, and applies to all types of deposits. This means that depositors have peace of mind knowing their funds are protected.

In the event of a bank's insolvency, the fund will make the payout directly to the depositors, without any need for them to file a claim. This process typically takes a few weeks, and depositors can expect to receive their funds in Norwegian kroner.

Here are the key deadlines for reimbursement:

Note that there are some exceptions to these deadlines, such as if the deposit is subject to legal dispute or if the depositor is under prosecution for money laundering or financing of terrorism.

Payout Procedures

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The payout procedure is a crucial aspect of the deposit guarantee scheme. The Guarantee Fund is responsible for making payouts to depositors in the event of a bank's insolvency.

Payouts are made as soon as possible, usually within a few weeks of the bank's failure. This is in accordance with Section 19-7, which sets a deadline for reimbursement of seven working days after the deposits became unavailable.

The payout process begins with the Fund's receipt of the bank's deposit data, which is used to calculate the payout amounts. The payout is made directly to the depositors, without any need for them to file a claim.

In some cases, repayment may be deferred until after the deadline in subsection (1) if the deposit is subject to legal dispute, restrictive measures, or has not been transacted in the last 24 months.

Here are the possible reasons for deferred repayment:

The payout is made in Norwegian kroner, but can be converted into other currencies at the depositor's request.

Depositor Notification Obligation

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The Norwegian Bank's Guarantee Fund is required to provide depositors with necessary information on the deposit guarantee scheme on its webpages.

This information is crucial for depositors to understand their rights and the protection they have under the scheme. The Fund must make this information easily accessible to ensure depositors are well-informed.

The ministry may make provision concerning the obligation to inform depositors through regulations, but the Fund's primary responsibility is to provide this information on its webpages.

Depositors can expect to find clear and concise information about the deposit guarantee scheme, including how it works and what is covered. This transparency is essential for building trust between depositors and the banking system.

The Fund's obligation to inform depositors is a critical aspect of the deposit guarantee scheme, and it's essential for depositors to be aware of their rights and the protection they have.

Financial Institutions Act

The Financial Institutions Act is the foundation of the Guarantee Fund's operations, establishing its mandate to guarantee deposits in member banks up to a certain limit.

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This Act sets out the rules for the Fund's management and funding, including the contributions to be made by member banks.

The Act provides for the Fund's intervention in the event of a bank's insolvency, outlining procedures for the payout of guaranteed deposits.

The Fund's rights and obligations in insolvency proceedings are also clearly defined within the Act.

Guarantee Fund Size and Contributions

At the end of 2007, the Norwegian guarantee fund amounted to 2.6 percent of guaranteed deposits, which is relatively low compared to other countries.

The fund's size is a concern, especially if a crisis were to arise in one of the larger banks, as it may not be sufficient to cover all deposits.

The Norwegian fund can also lend and provide capital support to member banks, which is a unique feature compared to other guarantee funds.

The current system allows for a "contribution holiday" when the fund exceeds the minimum requirement, but Norges Bank believes this should be abolished to ensure a steady stream of funding for the fund.

The contribution amount should be set annually by the guarantee fund's board of directors, with a clearly defined lower limit, such as half of the ordinary contribution level.

Calculation of Contributions

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The calculation of contributions to the Guarantee Fund is based on a bank's deposits and risk profile. The deposit base includes all deposits in the bank, excluding deposits exceeding the guarantee limit and deposits by other banks.

A bank's risk profile is assessed based on its capital adequacy, asset quality, earnings, and liquidity. The contribution rate is determined by the board of directors, within the limits set by the Financial Institutions Act.

The contribution rate is reviewed annually, taking into account the Fund's financial position and the banking sector's risk profile. Annual contributions are collected, providing a steady stream of funding for the Fund.

Guarantee Fund Size

At the end of 2007, the Norwegian fund amounted to 2.6 percent of guaranteed deposits, which is relatively small compared to other Nordic countries.

The Norwegian fund is limited in its ability to require extraordinary contributions from member banks, unless it falls below the statutory minimum.

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The fund can also lend and provide capital support to member banks, which is a unique feature compared to other guarantee funds.

The Finnish guarantee fund, which only guarantees deposits, has a target for fund capital of 10 percent of guaranteed deposits.

It's preferable for the fund to be larger than the statutory minimum, especially in case of a crisis in a larger bank.

The minimum requirement must be viewed in conjunction with the size of the guaranteed amount, and it's not enough on its own.

The current system allows for setting the guarantee fund contribution to 0 when the fund has reached the minimum requirement, which is an undesirable practice.

Norges Bank believes that the right to declare a "contribution holiday" when the fund exceeds the minimum requirement should be abolished.

The contribution amount should be set annually by the guarantee fund's board of directors, but with a clearly defined lower limit of e.g. half of the ordinary contribution level.

Branches and Foreign Banks

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If you have a Norwegian bank account with a foreign branch, your deposits are covered by the Norwegian Banks' Guarantee Fund, up to EUR 100,000.

Branches of Norwegian banks abroad must specify which guarantee applies to depositors in the relevant country. This is according to Norwegian rules.

Foreign banks operating in Norway through a branch or other cross-border activity are considered domiciled in their home state, and their deposits are not covered by the Norwegian guarantee scheme.

However, foreign banks with a branch in Norway may become members of the Norwegian Banks' Guarantee Fund if they wish. This is a voluntary decision on their part.

A number of credit institutions engage in cross-border activities and have notified the establishment of branches or cross-border activities in Norway and the establishment of branches abroad.

Rules and Requirements

The Norwegian Banks' Guarantee Fund has some specific rules and requirements that you should be aware of.

To be eligible for compensation from the fund, a bank must be a member of the Norwegian Banks' Guarantee Fund, and the bank's failure must be due to a reason that is covered by the fund.

The fund provides compensation up to a maximum of 2.5 million kroner per depositor, and the total compensation is capped at 2.5 billion kroner.

Right of Recourse

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The Right of Recourse is an important aspect of the Norwegian Banks' Guarantee Fund. When the deposit guarantee scheme has repaid covered deposits, it becomes subrogated to the depositor's rights against the member institution.

The guarantee scheme can then demand reimbursement of the financial resources it used to implement measures, such as resolution proceedings. This is outlined in section 19-11 subsection (2) or (3) of the relevant regulations.

Here are the specific rights of recourse outlined in the regulations:

The Norwegian Banks' Guarantee Fund plays a crucial role in ensuring the stability of the banking sector. By understanding the right of recourse, we can better appreciate the mechanisms in place to protect depositors and promote financial stability.

Administrative Requirements

The Norwegian Banks' Guarantee Fund has to establish administrative systems to calculate its potential deposit liabilities. This includes preparing for repayment of covered deposits and ensuring that member institutions provide regular updates on depositors and eligible deposits.

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Stress tests of these administrative systems must be performed regularly, at least every three years. This is to ensure that the systems can handle any potential issues that may arise.

The Norwegian Bank's Guarantee Fund may require members to inform it about the aggregate amount of eligible deposits for each depositor. This information must be submitted electronically in a format that's compatible with the guarantee fund's systems.

The guarantee fund also has the right to examine members' accounts and audit their management. This includes requesting documents and information that it deems necessary.

The Norwegian Bank's Guarantee Fund must keep its members informed about the activity of the guarantee scheme. This includes convening meetings as needed to discuss matters related to the scheme's functioning.

Here's a summary of the administrative requirements for the Norwegian Bank's Guarantee Fund:

  • Establish administrative systems to calculate potential deposit liabilities
  • Prepare for repayment of covered deposits
  • Ensure regular updates from member institutions
  • Perform stress tests every three years
  • Request information from members about eligible deposits
  • Examine members' accounts and audit their management
  • Keep members informed about the guarantee scheme's activity

Rules for Bank Funds

The Norwegian Banks' Guarantee Fund has specific rules that govern its operation. Membership of the fund is mandatory for all banks with a Norwegian licence.

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The fund's current scheme poses a moral hazard, as it can be attractive to banks experiencing financial difficulties. This is because no contribution has been charged for membership of the Guarantee Fund, leading to banks bidding up interest rates on deposits.

Banks with international operations can also take advantage of the fund by funding their international portfolio with growth in deposits in their Norwegian branches. This has been particularly strong in recent years, and will likely impact lending rates over time.

The fund's website provides general information about the fund, including details on the deposit guarantee scheme, guarantee for deposits in other European countries, and a list of members of the Guarantee Fund.

Here's a quick overview of the key facts about the Norwegian Banks' Guarantee Fund:

  • Norwegian banks have the right and obligation to be members of the fund.
  • Deposits in Norwegian banks are covered by the fund.
  • The fund's website provides information on the deposit guarantee scheme, guarantee for deposits in other European countries, and a list of members.

Branch Fee Calculation

Calculating fees for branches is a straightforward process. Covered deposits at a branch are calculated as the depositors' aggregate deposits up to NOK 2 million.

That portion of the deposit which is to be covered under the home state's deposit guarantee scheme is deducted from the aggregate deposits. The definition of covered deposits at a branch does not impact the Norwegian Banks' Guarantee Fund's actual liabilities or right to cover deposits.

Cooperation and Resources

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The Norwegian Banks' Guarantee Fund has rules in place for cooperation with guarantee schemes in other EEA member states. The fund ensures that covered deposits received by a member institution through its branch in another EEA member state are repaid at the earliest opportunity by the guarantee scheme for bank deposits in the state where the branch is established.

The deposit guarantee scheme also undertakes disbursement of covered deposits with reference to the guarantee scheme in the institution's home state on behalf of and in accordance with instructions from the guarantee scheme in that state. This cooperation is crucial in ensuring that depositors receive their money even when their bank has branches in multiple countries.

The fund has the authority to make rules on cooperation with a guarantee scheme in another EEA member state. This includes laying down rules on how the two schemes can work together to ensure a smooth repayment process for depositors.

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The Norwegian Banks' Guarantee Fund uses its resources to finance the repayment of covered deposits, contributions to the resolution of institutions, and measures to prevent a member institution from failing. The fund can also use its resources to grant loans, issue guarantees, or acquire equity certificates to prevent a bank from failing.

Here are some key facts about the fund's use of resources:

  • The fund's resources can be used to grant loans, issue guarantees, or acquire equity certificates to prevent a bank from failing.
  • The fund can also use its resources to finance measures to secure covered depositors' continued access to their deposits.
  • The fund can borrow from or lend to a guarantee scheme in another EEA member state.
  • The fund's resources can be used to finance the repayment of covered deposits, contributions to the resolution of institutions, and measures to prevent a member institution from failing.

Use of Resources

The Norwegian Banks' Guarantee Fund has specific rules for using the deposit guarantee fund's resources. The fund's resources are exclusively used to finance the repayment of covered deposits, contributions to the resolution of institutions, and measures under section 19-11.

Under section 19-11, the fund can use its resources for alternative measures, such as granting loans or acquiring equity certificates, to prevent a member institution from failing. This can only happen if certain conditions are met, including the ministry not taking any resolution action and the deposit guarantee fund's costs not exceeding the costs of repaying covered deposits.

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The fund can also use its resources to finance measures to secure covered depositors' continued access to their deposits, including transfer of assets and liabilities and deposit book transfer, in the context of winding up member institutions.

The fund may use its financial resources to implement measures under section 19-11 subsection (2) or (3) if conditions are met, including the deposit guarantee fund's costs not exceeding the costs of repaying covered deposits and Finanstilsynet determining that the deposit guarantee fund can be supplied with resources.

In cases where the fund's available financial resources are insufficient, other member institutions must provide the deposit guarantee fund with resources corresponding to the cost of the measure concerned in the form of extraordinary contributions.

Here's a summary of the conditions under which the fund can use its resources:

Cooperation with a Scheme in Another EEA Member State

The deposit guarantee scheme must ensure that covered deposits received by a member institution through its branch in another EEA member state are repaid at the earliest opportunity. This is done in accordance with the instructions of and on behalf of the guarantee scheme of the home member state.

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The deposit guarantee scheme must undertake disbursement of covered deposits with reference to the guarantee scheme in the institution's home state on behalf of and in accordance with instructions from the guarantee scheme in that state.

The ministry may lay down rules on cooperation with a guarantee scheme in another EEA member state. This includes rules on lending to or borrowing from a guarantee scheme in another EEA member state.

The deposit guarantee scheme's resources can be used to finance the repayment of covered deposits and measures to prevent a member institution from failing. The scheme can also use resources to grant loans, issue guarantees, or acquire equity certificates.

A deposit in Norwegian kroner must be converted to the host state currency at the bid price in effect on the date the deposit became unavailable.

Here is a summary of the deposit guarantee scheme's cooperation with a guarantee scheme in another EEA member state:

Frequently Asked Questions

What is a deposit guarantee fund?

A deposit guarantee fund is a system that safeguards deposits in case of a bank or financial institution's failure, protecting depositors from loss. It provides a safety net for depositors, ensuring their funds are secure and accessible.

Cassandra Bednar

Assigning Editor

Cassandra Bednar serves as an Assigning Editor, overseeing a diverse range of articles that delve into the intricate world of European banking. Her expertise spans cooperative banking, bankers associations, and various European trade associations. Cassandra has a keen interest in historical and contemporary financial institutions, particularly those established in the 1970s.

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