In Czechia, the majority of citizens are cautious with their savings, ensuring they remain within the deposit insurance coverage limit

Prague, 12 March 2024: In the European Economic Area (EEA), 96% of eligible depositors are fully covered at the current deposit insurance limit of €100,000. This means that in the event of the failure of a financial institution, the deposit insurance scheme would pay them the full amount of their deposits in the failing institution. The four percent of depositors who are not fully covered are mostly legal persons.

In the Czech Republic, the share of fully covered depositors is higher at around 98%. Together, these depositors hold approximately CZK 3.5 billion in insured deposits.

Renata Kadlecová, Executive Director of the Financial Market Guarantee System, suggests that according to the analysis the current deposit insurance limit is adequate. "Given that the majority of depositors are sufficiently protected by the existing limit, we do not see a need for an increase. Any adjustment would necessitate maintaining a larger financial reserves in the Deposit Insurance Fund, thereby raising costs for the banking sector. Currently, the target level of the Deposit Insurance Fund is set at 0.8% of the total covered deposits in Czech banks," she says. Furthermore, increasing the level of coverage may heighten moral hazard, as depositors might become less vigilant about the risk of bank failure when opening an account.

However, a significant improvement to the deposit insurance framework could involve adjusting the protection limit for temporarily high balances. In specific cases defined by law, additional compensation beyond the standard €100,000 limit may be granted, for example, when the depositor receives proceeds from the sale of a private residential property or proceeds from the settlement of a matrimonial assets. "During the process of compensating depositors following the collapse of Sberbank, it become evident that the current maximum protection amount for temporarily high balances, set at €200,000, proved insufficient in numerous cases. Given the general rise in prices, it is therefore appropriate to discuss raising the limit for temporarily high balances protection. One potential solution is the European Commission's proposal, as part of the Crisis Management and Deposit Insurance reform, to increase the limit for temporarily high balances coverage to €500,000 and extend the protection period to 6 months," suggests Renáta Kadlecová. The timeline for implementing such a change remains uncertain. The Commission's proposal will undergo further negotiations and must be ratified by the newly elected European Parliament before being transposed into national legislation.

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