Are bank deposits in Spain safe?: the heads and tails of bankruptcy

The bankruptcy of Silicon Valley Bank in March and a week later the Credit Suisse crisis have called into question the protection of capital placed in deposits and many Spanish savers wonder if their fixed-term money is safe or not.

The experts are blunt and affirm that if it is: “Deposits are covered and have all the security provided by the backing of the European Central Bank”, assures Fernando Zunzunegui, founding partner of Zunzunegui Abogados and regulation coordinator of the Spanish Association of Financial Planners and Advisors (EFPA).

Yes indeed, only up to 100,000 euros per customer and entity, which is the amount covered by the Deposit Guarantee Fund for Credit Institutions Spanish (FGD). What exceeds of that amount, savers they would lose it in case of bankruptcy or liquidation of the entity. Hence, financial advisers recommend their clients to invest a maximum of 100,000 euros in deposits per bank to avoid risks.

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What the FGD could not cover with its resources would be a massive flight of deposits generated by a crisis of confidence among savers, since, according to the last FGD annual accounts document corresponding to the end of 2022, their available funds amounted to 6,609 million of euros, which means only the 0.75% of deposits guaranteed that date.

However, “the fact that the fund is not endowed to face all contingencies does not affect the security of deposits, since in case of need will receive the financing necessary by the european supervisor to face the guaranteed coverage”, says Zunzunegui.

A need that does not exist at the moment, since the restructuring of Spanish banks in recent years has made the sector “one of the more solvent and stronger”, acknowledged last week Nadia Calviño, Minister of Economic Affairs. The four big Spanish banks, Santander, BBVA, CaixaBank and Sabadell, have a liquidity cushion that exceeds 600,000 million euros.

Unlike depositors, shareholders and debt holders They are the big victims in case of bank failure, because after the reform of the bank resolution system in the EU, the first to lose their money when a bank is rescued are the shareholders, then the holders of convertible bonds and in third place holders of other types of bonds.

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To avoid future problems and offer common protection to EU depositors, the European Commission is considering creating a European Deposit Guarantee Fund (EDIS).

“This is an inalienable objective because only a mutualized EDIS, where risks are shared, will be a authentic common guarantee fund”, indicates Ana Rubio, a BBVA Regulation expert. In her opinion, the pooling of risks makes the system “more resistant and less risky”, moreover, is “more efficient”by managing all guarantee funds together“.

Along with depositors, the banking sector would be another of the beneficiaries of the common fund, since, in Ana Rubio’s opinion, it would favor the cross-border mergers between banks“putting the great players in a better position to compete with the big international banks.

Another of the benefits of establishing the fund, in the opinion of Fernando Zunzunegui, is that “it would give security to depositors and market stability.

For his part, Félix López Esteban, partner at ATL Capital and professor at the Center for Financial Studies (CEF), believes that it would provide greater support for the European financial system, “something that has been fought for in recent years.” Above all, “it would generate more confidence, which is the base and pillar of any banking system”.

Gerard Albà, a professor at Carlemany University, also believes that the EDIS would be a very positive advance in the creation of the European Banking Union. Points out that initially it would coexist with existing national funds and allow the countries of the union to protect themselves and facilitate liquidity in case of crisis.

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Despite all its virtues, in the short term it is not contemplated to approve the EDIS due to the opposition of certain countries among which is Germany. As an alternative, it is proposed mutualise national FDGa “technical improvement that can be very useful in practice”, says Zunzunegui, since it would give access to funds from other Member States, “reinforcing and facilitating coverage”.

Nevertheless, “the common fund will end up being approved”, predicts López Esteban, because “historically Europe has been built on the basis of crises, so it is probable that after the next financial crisis the foundations will be laid for the creation of the EDIS”.

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