Draft laws aimed at strengthening financial system and providing more guarantees to depositors presented in Seimas

Date

2015 09 22

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Vilnius, September 22. Today Rimantas Šadžius, the Lithuanian Finance Minister presented the package of 16 legal acts aimed at strengthening national financial stability, protection of depositors and saving taxpayers money in the Seimas (Parliament of the Republic of Lithuania).

“The draft laws include the measures to tackle the issues of insolvency of banks and other financial institutions in effective manner by using the funds of the financial institutions themselves and not the taxpayers money, at the same time ensuring the swift pay-outs for depositors”, Rimantas Šadžius said. 

The package of draft laws prepared by the Ministry of Finance contains the provisions of the Single Resolution Mechanism Regulation, Bank Recovery and Resolution Directive as well as Deposit Guarantee Schemes Directive being transposed into national law. The package consists of 2 main draft laws and 14 appending draft laws. Seimas is also requested to ratify the inter-governmental Agreement on Transfer and Mutualisation of Contributions to the Single Resolution Fund.

The Bank Recovery and Resolution Directive aims at effective solution of problems related to credit institutions and large investment firms by using funds of the financial institutions themselves rather than those of the taxpayers. Therefore the Resolution Fund financed from the contributions by the financial market participants will be established. The resources of this Fund, if needed, would be used for resolution. Starting from 2016 the Fund will gradually merge into the EUR 55 billion Single Resolution Fund of the euro area. Lithuania‘s estimated share in the Single Resolution Fund would constitute EUR 33 million.

Financial institutions facing insolvency risk will be able to be resolved by applying 4 resolution tools (used individually or in various combinations): by transferring business, establishing a bridge institution, using asset management vehicle and applying bail-in (i.e. writing-off the capital).

According to the proposals, the authority responsible for resolution of the financial sector entities would be the Bank of Lithuania and from 1 January 2016 - Bank of Lithuania together with Single Resolution Board, established in accordance with Single Resolution Mechanism Regulation.

The purpose of the Deposit Guarantee Schemes Directive is to ensure that deposit insurance funds have enough resources and, if needed, the insurance payments are promptly paid to depositors. After adoption of the amendments to the Law on Insurance of Deposits and Liabilities to Investors, the maximum time limit for reimbursement of the deposit compensation will be gradually shortened almost four times - from 30 to 7 working days. 

There will be also cases when the insurance amount will exceed the standard level of EUR 100, 000. Among the exceptions – the cases when a person puts a deposit in a bank or other credit institutions after selling an apartment or land (compensation up to EUR 300 000) or inherits the deposit (compensation up to EUR 200 000), as well as receives compensation for the damage caused during the crime (compensation up to EUR 200 000). However, the money to the depositors account must be transferred at least 6 months before the date of the insured event.

The deposits of state and municipal authorities and bodies will no longer be insured.

Within the period of 10 years the Deposit Insurance Fund should store up at least 0.8 per cent of total amount of the insured deposits, and within subsequent 4 years – the Deposit Insurance Fund should make up at least 2 per cent of total amount of the insured deposits.   

Contributions by credit institutions to the Deposit Insurance Fund are differentiated into ex-ante and ex-post. The latter contributions will be collected from credit institutions in cases when the amount of resources available in the Fund will not be sufficient for reimbursement of compensations, therefore, they will reduce the probability of using state resources.

After the Seimas adopts these draft laws, legal conditions for ensuring Lithuania’s full-fledged participation in the Banking Union will be fulfilled.

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