A credit institution is an undertaking which conducts at least one of the banking businesses described in detail in section 1 (1) of the German Banking Act (Kreditwesengesetz) commercially or on a scale which requires commercially organised business operations. The banking businesses include the deposit business and credit business, but also specific securities-related activities such as principal broking services and the safe custody business.
The EdB compensation scheme is in place to protect depositors from the risks associated with the banking business of its members.
If a compensation event occurs, the depositor shall have a right to compensation as provided for by the law from the deposit guarantee scheme of which the CRR credit institution is a member.
The Entschädigungseinrichtung deutscher Banken GmbH (EdB, Compensation Scheme of German Private Banks) is a wholly-owned subsidiary of the Association of German Banks. It was entrusted by the German Federal Finance Ministry with the task of running the statutory deposit guarantee and investor compensation scheme for the private banks in Germany.
The EdB’s job is to compensate the creditors of a bank assigned to it where the bank is unable to repay deposits. Liabilities arising from securities transactions conducted by a credit institution (i.e. bank) as defined in the EU Capital Requirements Regulation (CRR) are also deemed to be deposits.
Pursuant to section 1 (3d) of the German Banking Act, a CRR credit institution is a credit institution that also meets the narrower definition of a credit institution in accordance with Article 4 (1) no. 1 of the EU Capital Requirements Regulation (CRR). CRR credit institutions are supervised in the context of the Single Supervisory Mechanism (SSM) either directly by the European Central Bank (ECB) as significant institutions (SIs) or by BaFin together with the Deutsche Bundesbank as less significant institutions (LSIs).
In accordance with Section 26 (1) of the German Deposit Guarantee Act (Einlagensicherungsgesetz or EinSiG), the CRR credit institutions are obliged to pay annual contributions at the end of each accounting year (Jahresbeiträge). The accounting year covers the period from October 1st of one year to September 30th of the following year. The contributions to the EdB are therefore due for payment on September 30 of each year.
The details of the contribution payment can be found in the ordinance issued by the Federal Ministry of Finance on the financing of the compensation facility of German banks and the compensation facility of the Federal Association of Public Banks in Germany (compensation facility financing ordinance or Entschädigungseinrichtungs-Finanzierungsverordnung – EntFinV), see Federal Law Gazette I of 11 January 2016 p. 9 f.
Pursuant to Section 17 (2) EinSiG, the EdB must ensure that the financial resources available to it reach a target level of at least 0.8 percent of the covered deposits of the institutions belonging to it by July 3, 2024.
The EdB has developed an internet platform for the regular collection of annual contributions to the EdB, via which a questionnaire is made available to the institutes from the end of May / beginning of June each year. A number of key figures and the external rating results must be entered in the questionnaire. The Internet access data for using the platform are sent to the banks annually by post.
The completely recorded questionnaire must be sent electronically via the aforementioned platform together with the following documents (see also Section 15 Paragraphs 2 to 4 of the EntFinV):
- Asset encumbrance sheets, current and previous year (template F 32.01),
- COREP sheets, current and previous year,
- SAKI sheet, current and previous year,
- Documentation of all ratings valid as of May 31, 2020 in accordance with Section 10 of the EntFinV (at least one rating is required)
The following documents are to be sent in paper form to the Auditing Association of German Banks e.V.: The fully recorded and legally binding questionnaire including date and institute stamp, and in accordance with Section 34 (1) EinSiG: the audit report for the financial year, insofar as this has not already been sent to the Auditing Association.
The EdB can allow the CRR credit institutions assigned to it to pay up to 30% of their annual contribution in one accounting year by assuming contractual payment obligations. The prerequisites are that the EdB and the CRR credit institute have signed a framework agreement on payment obligations pursuant to Section 21 of the EntFinV and a framework contract on financial collateral pursuant to Section 27 of the Funding Regulation by June 30 of the respective accounting year. In addition, there has to be an agreement on the assumption of payment obligations by September 1st of the accounting year according to § 22 EntFinV for the accounting year and the provision of financial collateral according to § 26 EntFinV.
A contribution notification will be created on the basis of the transmitted data. The contribution notification is an administrative act against which an objection can be raised at the EdB. However, according to Section 32 (1) EinSiG, objections and actions for rescission have no suspensive effect. Pursuant to Section 32 (2) EinSiG, the law provides for the possibility of enforcement from the contribution notice in accordance with the provisions of the Administrative Enforcement Act.
The EdB also has to levy special contributions if it finds that its funds are insufficient to carry out compensation proceedings. Section 29 EinSiG regulates the details.
The contributions to the compensation scheme depend on the creditworthiness of the assigned institute. You will find an explanation in “Creditworthiness functions according to the EntFinV”. The external rating results, which are included in the calculation of the creditworthiness with 25%, are part of these explanations.
With regard to the creditworthiness function, a left-skewed distribution in favor of the discount classes was determined as part of the annual backtesting process, which is also expressed in an increased “µ” in the EBA formula. On the basis of a now broader and qualitatively better database, both individual risk indicators and the transformation functions were validated with the aim of a broader spread. On the basis of transformation functions, the calculated risk indicators are assigned individual risk values (IRSi), which are combined to form a weighted individual risk value. Using the sum value (ARSi) of the weighted individual risk values, the aggregated risk weight (ARWi) is determined based on ten credit rating cagegories using a further transformation function.
The annual contribution is the result of the following formula:
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