Who insures deposits?
Deposits are insured by insurers, i. e. commercial banks, branches (departments) of foreign banks established in Lithuania and credit unions. Deposit insurance is administered by the Insurance Company - the state company Deposit and Investment Insurance.
What is the subject of deposit insurance?
This is deposits of depositors - natural and legal entities - in litas, US dollars, euros and currencies of member states of the European Economic Area held with commercial banks, branches (departments) of foreign banks in Lithuania and credit unions.
Whose deposits are insured?
Under the Lithuanian deposit insurance system, insurance covers deposits of natural and legal entities. The principle of deposit insurance is that deposits of one person are insured by different insurers separately. This means that deposits of one person with different banks are guaranteed separately according to the Law on Deposit Insurance and Insurance of Liabilities to Investors. Provisions of deposit insurance are applied to the depositor rather than the deposit. That is all insurable deposits of one depositor held with one bank are added up, and insurance compensation is determined based on the resulting amount. We would like to point out that all deposits of one depositor held with all braches and departments of one bank located in the territory of Lithuania are added up.
Who participates in the deposit insurance system?
Deposits are insured by commercial banks, branches (departments) of foreign banks and credit unions. Foreign banks, having set up departments (branches) in Lithuania, must insure deposits only if they have not insured these deposits in their home country or conditions of deposit insurance of their home country are worse than those set forth by the Lithuanian deposit insurance system. Currently, under the Lithuanian deposit insurance system, deposits are insured by commercial banks and branches (departments) of foreign banks and credit unions.
How much and how banks and credit unions pay for the insurance system?
Commercial banks and branches (departments) of foreign banks pay the Insurance Company insurance premiums, annually amounting to 0.45 percent of all insurable deposits, while credit unions pay 0.2 percent of all insurable deposits. The Council of the Insurance Company has a right to lower the rate of the insurance premium, depending on the capital size of the Insurance Company.
What deposits are insured
A deposit is the sum of the depositor’s money deposited with a commercial bank or a branch of a foreign bank established in Lithuania or in a credit union under a banking deposit and (or) banking account agreement, and other money to which the depositor holds rights of claim, arising from the liability of a credit institution to perform operations with the depositor’s money (including the accrued interest). In the event rights of claim to a deposit are held by a depositors’ group, the deposit is divided to each of them in equal parts, unless agreements, from which their right of claim arise, or court rulings provide otherwise.
Currencies of insurable deposits
Banks and credit unions insure deposits in litas and in foreign currency - dollars of the United States of America, euros and national currencies of the European Economic Area countries.
Payout limit is the value setting the maximum amount, up to which insurance compensations are calculated for a depositor of the bankrupt insurer. The liability limit equals the depositor’s deposit, held in a commercial bank or a department (branch) of foreign banks or a credit union on the day the bankruptcy action has been brought, however, it shall not exceed the following: amount in litas equivalent to 100 000 euros - from November 1, 2008 till October 31, 2009.
The payout limit is calculated for each depositor separately, adding up credit balances of all his deposit accounts - current, term savings and other deposit accounts and other rights of claim (with the exception of rights of claim under deposit custody agreements), with all branches and departments of that bank. Balances of foreign currency accounts are converted into litas based on the exchange rate on the day of bringing the bankruptcy action (see examples).
Excluded depositors’ deposits are deposits held with the daughter banks of Lithuanian banks or divisions of these banks operating beyond the territory of the Republic of Lithuania. Deposits in currencies of foreign countries that are not members of the European Economic Area, with the exception of the USA, are non-insurable.
Debt securities (certificates of deposit) and liabilities issued by the very insurer, related to bonds accepted by it and ordinary bonds, as well as liabilities to the following entities may not be the insurance subject:
- 1) the Bank of Lithuania;
- 2) the state company Deposit and Investment Insurance;
- 3) credit institutions;
- 4) financial brokerage companies;
- 5) insurance companies acting under the Law on Insurance;
- 6) pension funds;
- 7) investment management companies;
- 8) companies engaging in leasing (financial lease);
- 9) subject of collective investment.
The right to insurance compensation (payout)
The insurer is considered to have insured deposits when it pays insurance premiums according to the established procedure. When a bankruptcy action is brought against the insurer, a depositor acquires a right to insurance compensation. However, if law enforcement institutions have been appealed to regarding legitimacy of acquisition of depositor’s deposit, but the ruling has not been passed yet, payment of the insurance compensation to such a depositor will be suspended.
Insurance compensations are not paid to:
- 1) depositors, deposits of which, by the court ruling, have been acknowledged to have been acquired in an illegitimate way;
- 2) depositors, deposits of which have been by agreements or otherwise (with the exception of inheritance) assigned after the day of the insured event;
- 3) heads of a commercial bank, credit union or company administration, heads of branches (departments) of a bank, credit union or company, members of a council (observers’ council) and board; persons holding at least 5 percent of the bank’s share capital, or persons holding over 50 percent of the capital in companies holding at least 5 percent of the bank’s share capital; persons, carrying out independent audit of a commercial bank, credit union or company; children, step-children, spouses, partners in registered partnership, parents or stepparents of the persons specified under this item;
- 4) recipients of a loan from a commercial bank, credit union or financial brokerage company if they do not exceed their liabilities (unreturned loans with interest). If deposits of the loan recipient from a bank, a credit union or the company exceed the liabilities of this recipient (unreturned loans with interest), liability limit is calculated by subtracting recipient’s liabilities from the deposit, but it may not exceed the amount provided for in part 3 of article 9 of the Law;
- 5) for deposits held in anonymous and coded accounts;
- 6) for deposits that the insurer has set the interest rate for more than twice exceeding the interest rate for adequate deposits with the same credit institution.
Values of insurance compensations:
from November 1, 2008 till October 31, 2009 – 100 percent of the deposit up to the amount in litas equivalent to 100 000 euros.
Who and how calculates insurance compensations?
Insurance compensations to depositors of the insurer undergoing bankruptcy are calculated by the state company Deposit and Investment Insurance. The Insurance Company calculates insurance compensations based on the insurer’s data. Administrator (liquidator) of the insurer undergoing bankruptcy must within one month after bankruptcy action has been brought against the insurer submit exact data on depositors and deposits to the Insurance Company.
How is insurance compensation calculated?
Insurance compensations are calculated and paid in litas.
Depositor’s insurance compensation is calculated as follows:
- 1) funds owned by a depositor deposited in a commercial bank or a branch of a foreign bank or a credit union under a banking deposit and (or) banking account agreement, as well as other money that the depositor holds rights of claim to, arising from the financial deposits’ operations performed by the credit institution (with the exception of rights of claim under deposit custody agreements) and the part of the money owned by the depositor, that a group of depositors holds rights of claim to, are added up. This amount includes depositor’s funds kept with all branches (departments) of the same insurer.
- 2) an amount of up to 100 000 EUR is compensated 100 percent.
Who, how and over what period of time compensates insurance compensations?
Insurance compensations of the insurer undergoing bankruptcy are paid to depositors from the moneys of the Deposit Insurance Fund, administered by the Insurance Company. Insurance compensations are paid within three months from to time the bankruptcy action was brought against the insurer. The Council of the Insurance Company may extent this term no more than twice, three months at a time.
The method of insurance compensations is selected by the Insurance Company. In every case of insurance compensations payment the Insurance Company will notify the public through the media on where and how insurance compensations will be paid.
What must depositors submit at the point of collection of insurance compensations?
The Council of the Insurance Company announces the procedure for paying insurance compensations in the Official magazine "Valstybės Žinios". The Insurance Company announces the place and time of paying insurance compensations in at least 2 Lithuanian daily newspapers.
To get the insurance compensation, a depositor must submit a personal identification document specifying the personal code (passport being the best option).
When and who may terminate deposit insurance?
The Council of the Insurance Company may without advance notice terminate deposit insurance if the supervisory institution of the insurer revokes the permit of the insurer to accept deposits. The supervisory institution must notify the Council of the Insurance Company about the revoking of such a permit on the day the decision is made.
If the insurer violates the procedure of deposit insurance and (or) its activity jeopardises liquidity of the Insurance Company, the Council of the Insurance Company gives to the insurer at least a 12-month advance warning of the possible termination of deposit insurance. The Council of the Insurance Company notifies the supervisory institution of the insurer of the warning to the insurer. If over 12 months after the warning the insurer does not eliminate violations of the deposit insurance procedure and (or) its activity does not improve, upon resolution of the Council of the Insurance Company, coordinated with the supervisory institution of the insurer, deposit insurance may be terminated.
The Insurance Company announced about the termination of deposit insurance in the supplement “Informaciniai pranešimai” of ”Valstybės žinios” (“Official Gazette”).
What are the rights of depositors after termination of deposit insurance?
If bankruptcy action is brought against the insurer, the deposit insurance of which has been terminated, the Insurance Company pays insurance compensations only to those depositors, whose deposits were accepted prior to the resolutions to terminate insurance announced in the supplement “Informaciniai pranešimai” of ”Valstybės žinios” (“Official Gazette”), but not returned to the depositor by the day of bringing the bankruptcy action.