When is a bank declared bankrupt?
In the event of impossibility of repaying customer deposits
When a bank can no longer face its commitments for lack of financial resources, its failure is noted and it is declared bankrupt. This is the case when it can no longer reimburse the funds entrusted by its customers, honor its debts or guarantee the security of deposits.
A bankruptcy declared by the Prudential Control and Resolution Authority (ACPR)
The bankruptcy declaration of a bank is pronounced by the Prudential Control and Resolution Authority (ACPR), the organization responsible for watching over the country’s banking system. But this process is only triggered in the last resort. Before pronouncing bankruptcy, recovery measures may be tempted to save the bank, such as restructuring, recapitalization, shareholders’ intervention, etc.
How does the deposit and resolution guarantee guarantee (FGDR) work?
FGDR: definition
Established by the law of June 25, 1999, the deposit and resolution guarantee fund (FGDR) is responsible for a public service mission. He ensures the protection of banking customers and compensates them in the event of a failure of the establishment.
Mandatory contribution to the guarantee of deposits, securities or compulsory or regulated guarantees
For compensation for customers, the fund has equity resources which in 2024 rose to 7.7 billion euros. This fund is fueled by the 1,157 members who necessarily contribute annually for at least one of the three guarantees or the national resolution mechanism:
- Guarantee of deposits in the event of bank failure;
- Guarantees of securities (maximum of 70,000 euros per customer and by establishment);
- Guarantees of compulsory or regulated guarantees (the FGDR replaces the defaulting professional in the event of the commitment of regulatory guarantees);
- National resolution mechanism (intervention of a resolution authority in an establishment in order to restructure it to avoid bankruptcy or operate an ordered liquidation).
In addition, the FGDR has, for its activities, significant resources allowing it to carry out preventive intervention or finance asset transfers or grant guarantees to make the resolution of a banking crisis.
What banks are covered in the event of bankruptcy?
Traditional, online banks or credit institutions authorized to receive deposits
All French banks approved by the ACPR benefit from the coverage by the FGDR.
This is the case:
- traditional French banks,
- online banks domiciled in France,
- Credit institutions authorized to receive deposits.
The branches of foreign banks established in France with their country of origin
The branches of foreign banks established in France can be covered by similar guarantee systems in their country of origin, if this country is a member of the European Union. If the branch is located outside the European Economic Area, a specific agreement can apply to cover deposits in France.
How does the deposit guarantee set up?
A period of seven days to compensate customers
Informed of the bank’s failure by the ACPR, the deposit and resolution guarantee fund has a period of seven working days to compensate the deposit customers. The latter are informed of the situation and the terms by the bank or the FGDR itself.
Automatic transfer of reimbursement
They have no approach to undertake, this compensation is automatic. The FGDR sends them directly a refund by transfer or by check.
What is the amount of the bank deposit guarantee?
A bank guarantee of a maximum amount of 100,000 euros
The guarantee granted by the FGDR is limited to 100,000 euros per depositor and per bank. This means that in the event that a customer has several accounts (current account, one or more savings accounts) in the same bank, the total of his deposits is guaranteed to a Ceiling of 100,000 euros at most.
One guarantee by banking establishment
On the other hand, the customer who has several accounts in different banks, has a guarantee of 100,000 euros per banking establishment. For example, a customer who has an account within a traditional bank and an account in an online bank may benefit from a maximum guarantee of 200,000 euros (100,000 euros per bank).
The ceiling can be extended to 500,000 euros
In some special cases, the bank deposit guarantee is extended to Euros. For example, when the customer filed, within three months preceding the bankruptcy of the bank, a significant sum coming:
- the sale of real estate,
- compensation for a dismissal,
- disability,
- of a death,
- of a retirement,
- compensatory indemnity of a divorce …
In the event of a cumulation of events (such as the sale of real estate and a donation), the increased ceiling applies to each sum concerned. In addition, bodily injury benefit from care without any amount of amount.
What types of accounts and booklets are covered by the deposit guarantee?
Most types of bank deposits
Compensation covers most types of bank deposits: current accounts, savings booklets, term accounts, accounts and housing savings plans (Cel and PEL). On the other hand, regulated booklets such as booklet A, LDDS, LEP are not covered in this context. They have their own guarantee granted by the State.
The attached accounts
In the case of a joint account, the amount of the warranty is distributed equally between each cotitular (except other distribution indicated in the contract). Everyone adds their share of the joint account with the sums deposited on their other accounts and booklets and is protected by the deposit guarantee within the limit of 100,000 euros per customer.
Obligations and shares are not covered
On the other hand, are not covered in the ceiling of 100,000 euros, the obligations and shares held with the bank. This are the subject of the special securities guarantee (shares, bonds, UCITS, SICAV or FCP shares, debt securities, etc.) if it has been taken out by the bank and within the limit of 70,000 euros per customer. This warranty is only triggered if the bank ceases its activity and provided that managed securities cannot be returned or reimbursed to investors.
The products which, under article 312-41 of the Monetary and Financial Code are also formally excluded, have the character of equity (shares; cash vouchers; cryptocurrencies, etc.).
How high is the customer of a bankrupt bank is compensated?
The compensation of the customers of a bankrupt bank depends on the amounts deposited and the distribution of these deposits in the different types of bank accounts.
For a bank account on pay less than 100,000 euros
If the deposits of a customer are less than 100,000 euros, the FGDR reimburses all of its assets.
For deposits greater than 100,000 euros
If the deposits are greater than 100,000 euros, the warranty covers up to 100,000 euros. The customer then risks losing the part of the deposits exceeding this threshold. Unless other resolution mechanisms are put in place (recapitalization of the bank, sales of assets, etc.) and that it receives all or part of its damage through this.
For exceptional deposits
For temporary exceptional deposits (as mentioned above), compensation can reach 500,000 euros.
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