1.13% of savings safe in event of Portuguese bank collapse

Portugal’s Deposit Guarantee Fund which is meant to ensure savings are protected in the event of an unlikely systemic bank collapse is less secure than a year ago.

At the end of 2019, the fund only had enough reserves to protect €1.13 for every €100 in savings in national banks.
According to a report from the Deposit Guarantee Fund (FGD): “The relation between the Fund’s own financial resources and bank deposits effectively covered by the guarantee stood at 1.13% at the end of 2019, still well above the 0.8% which is the level of capitalisation which under European Central Bank rules Portugal’s banking system should have by 2024.
In other words, in practice the FGD has €1.13 covered for each €100 of customer deposits. Last year it had €1.16 insurance for every €100 of bank customer savings.
The downgrade in own capital resources is explained by the losses of €1.56 million, a result that was offset by contributions of €350,000 that it received last year. Even so, the FGD had a negative balance of €1.21 million in its own accounts.
At the end of 2019, the total amount of deposits covered by the FGD’s compensation guarantee stood at €136,118 million. On the other hand, the proportion of deposits, which although held by eligible depositors, is not covered if they exceed the guarantee limit of 28%.
The FGD guarantees compensation of the entire amount of the liquid savings of each depositor in banks which are members of the FGD up to a limit of €100,000.
The FGD was set up in 1992 and would spring into action in the event of the collapse of a financial institution, with the other banks in the system injecting the necessary amount to ensure the clients of the collapsed bank have their savings restored within 15 days, or seven days in the case of savings below €10,000.
It has only been used once when it had to guarantee the deposits of clients at the bank BPP which collapsed in 2010.
“It was the most difficult challenge the FGD had to face over the past 25 years and meant a total cost of around €104 million” states the fund.