EU seeks to double deposit insurance limit

The European Commission proposed Monday to double protection for bank account holders across the 27 EU nations guaranteeing them a maximum payout of euro100,000 ($125,700), paid within seven days if their banks fold

It also proposed more compensation for investors -- to a maximum of euro50,000 ($62,900), up from euro20,000 ($25,000) -- if their assets tank because of fraud

That proposal seeks to shield investors from Ponzi schemes such as run by former US investment adviser Bernard Lawrence Madoff who defrauded thousands of billions of dollars

The deposit and investor compensation plans seek to "bring transparency and responsibility to Europe's financial system," said EU Internal Market Commissioner Michel Barnier

"European consumers deserve better," he told reporters. "They need reassurance that their savings, investments or insurance policies are protected no matter where in Europe they are based."

His proposals will become law once approved by the European Parliament and the 27 EU governments

Additionally, Barnier will launch a "public consultation" on improving protection for insurance policy holders

Only 12 EU nations now offer "insurance guarantee schemes" meaning 26 percent of all life -- and 56 percent of non-life -- insurance policies pay no compensation if insurance companies close shop

Barnier said the recent financial crisis had revealed the risk of "bank runs," when account holders fear their savings are not safe and try to withdraw them all at the same time

He estimated an EU-wide deposit guarantee scheme will save euro40 million ($50.2 million) a year in red tape in the 27 EU nations

After the 2008 financial crisis, EU governments raised the deposit protection from a minimum of euro20,000 to euro50,000 as of June, 2010. It now goes to euro100,000 which will cover 95 percent of all eligible bank accounts, 7 percent more than before the financial crisis

In addition to bigger compensation, Barnier also proposed a faster pay out: to a maximum of seven days, a limit also used in the US and Britain and a big improvement from a wait of weeks or months in some EU nations

Compensation would be paid regardless of where the bank account is

That means a Swedish bank account holder living in Portugal, would be compensated by the Portuguese deposit guarantee scheme which would recoup the funds from the Swedish scheme, said Barnier. Want more information regarding business insurance?

The deposits covered are per depositor per bank so the euro100,000 payout would cover all aggregated accounts of one account holder at the same bank