How bank deposits are insured in the Czech Republic
Which deposits are insured?
All non-anonymous deposits made by natural persons and legal entities and held in Czech koruna or a foreign currency are insured in the Czech Republic. Insured deposits include credit balances on accounts (current accounts, time deposits, etc.) or in deposit books and deposits evidenced by a certificate of deposit, deposit slip or other comparable document.
Uninsured deposits include, for example, those of banks, credit unions and other financial institutions listed in the Act on Banks, those of the state, those of local governments with tax revenues exceeding EUR 500,000, those in the form of subordinated debt, and those of persons convicted of intentionally committing the criminal offence of money laundering unless secured for the benefit of the victim of the criminal activity.
The deposit guarantee scheme does not apply to bills of exchange and other securities.
The Deposit Insurance Fund protects deposits at all banks and credit unions in the Czech Republic. It would also protect deposits at foreign banks from states outside the European Economic Area (EEA) if such banks operated in the Czech Republic. Deposits at foreign banks from EU/EEA Member States are insured in the same way as deposits in the Czech Republic, although by the relevant fund in the foreign bank’s home country.
What is the amount of compensation?
The amount of compensation is calculated from the sum of the depositor’s insured deposits at the bank/credit union in question. Compensation amounting to 100% of this sum is provided, up to an equivalent of EUR 100,000 per depositor per bank/credit union.
As from 1 January 2016, the Act on Banks provides for the possibility to pay increased compensation to natural persons for insured deposits of up to EUR 200,000 per eligible person per bank/credit union if the deposits come, for example, from an inheritance, a divorce settlement, a sale of residential property, severance pay, a termination settlement or gratuity paid upon termination of an employment or civil service relationship, lump-sum settlement of private pension policies with a state contribution or supplementary pension savings and insurance claims in the event of an accident, sickness, disability or death. Such a deposit must be made within three months before the record date.
The maximum amount of compensation and the terms of deposit insurance are the same for bank clients and credit union members and clients.
Who pays compensation, and when?
Compensation for insured deposits is paid by the Financial Market Guarantee System (“Guarantee System”), which administers the Deposit Insurance Fund. It will usually delegate the payment process to some other bank with an extensive branch network.
The Guarantee System is, in general, obliged to start making repayments within seven working days1 of the record date, namely the date on which
- the Guarantee System receives notification in writing from the Czech National Bank that a bank/credit union is unable to meet its commitments to eligible persons under the legal and contractual conditions,
- a Czech or foreign court issues an insolvency decision or another decision for reasons directly related to the financial situation of the bank/credit union resulting in the suspension of depositors’ right to dispose of deposits eligible for insurance.
In exceptional cases involving deposits with special treatment (i.e. cases where the funds of two or more persons are deposited on a single account), the deadline for the start of reimbursement is extended to 15 working days.
In some cases, the Act on Banks provides for suspension and later payment of compensation (for example when it is not clear who is eligible to receive compensation or the insured deposit is the subject of a legal dispute).
For the payment of increased compensation, eligible persons must provide the Guarantee System with evidence of their right to increased compensation within two months. The Guarantee System starts to pay out increased compensation within four months of the record date at the latest.
Compensation for insured deposits is paid in the currency of the state in which the account is located, i.e. in the case of accounts at a bank/credit union in the Czech Republic compensation is paid in Czech koruna regardless of the currency in which the accounts are maintained.
Banks and credit unions must inform their clients about deposit insurance in the form, among other things, of an information template, which they must give or send to them. In addition, each account statement must state whether the deposits on the account are insured.
Deposits at the Czech National Bank are not insured. This is due, among other things, to the CNB’s status of central bank. The Czech National Bank is a bank of issue and as such cannot go bankrupt.
1 The deadline for the start of reimbursement will be shortened to seven working days as from 1 June 2016. A deadline of 20 working days applies as from 1 January 2016.