Contributions to the Financial Market Guarantee System are constantly growing. This year, financial institutions have paid nearly five billion Czech crowns.
Prague,15 September 2020 – This year, banks, credit unions, building societies and selected investment firms have paid CZK 4,908.9 million in regular fees to the Financial Market Guarantee System. Most of this amount, specifically CZK 3,763.2 million has ended up in the Crisis Resolution Fund. The reserves of the Deposit Insurance Fund have increased by CZK 1,145.7 million.
Compared to the last year’s total (CZK 4,522.3 million), the amount of collected contributions went up by CZK 386.6 million to CZK 4,908.9 million. For the first time, the amount of collected contributions exceeded the level recorded in 2015, when annual contributions to the Financial Market Guarantee System (FMGS) were collected for the last time without regard to the risk level associated with each financial institution.
Thus, until 1 January 2016, banks and credit unions made fixed quarterly contributions of 0.04% of the total volume of insured deposits, while building societies made contributions of 0.02%. The last annual contribution of this type, which was collected in 2015, reached CZK 4,559 million. After 2015, with the new rules in force, the amount of annual contributions registered a one-time decrease 1. However, due to an uptick in the volume of deposits, it has been gradually increasing on a year-on-year basis and this year it was the highest in history.
Currently, the Deposit Insurance Fund has CZK 35.5 billion in available funding, which ensures the basic readiness of the Fund for starting deposit compensation payouts in the event that a financial institution encounters financial problems. Nevertheless, this is not the only funding to which the Fund has access. The Fund’s financial resources may be promptly bolstered by additional sources of funding, e.g. by potentially imposing extraordinary contributions, generating revenue from the sale of bonds or receiving credits or loans from foreign funds or from the state budget. The last payout from the Fund was completed on 21 October 2019 (this payout covered clients of the failed ERB bank, a.s.). Considering that the current level of reserves exceeds the minimum level required by the applicable European directive, the contribution is collected at a reduced rate.
The total amount available to the FMGS in the Crisis Resolution Fund is CZK 16.7 billion. The amount of contributions to the Crisis Resolution Fund is set by the Czech National Bank after consultation with the FMGS. The Czech National Bank is obliged to take into account that the target volume of assets in the Crisis Resolution Fund must reach 1% of the total volume of covered deposit by 31 December 2024. The objective is that the Crisis Resolution Fund will have accumulated approximately CZK 33 billion in its Contribution Fund by the end of 2024.
The financial reserves of both funds are currently invested by the FMGS in government bonds and repo transactions with treasury bills issued by the Ministry of Finance of the Czech Republic or by the Czech National Bank. As disclosed by the FMGS in its recently published 2019 Annual Report, last year, these investments led to an increase in the amount of funding by CZK 839.4 million. The full version of the 2019 Annual Report can be found on the FMGS website.
1 In 2016, the FMGS thus collected CZK 3,838.3 million, in 2017, this amount was CZK 3,965 million, one year later, it reached CZK 4,114.48 million and in 2019, it stood at 4,522.3 million.
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