Financial markets developments which gave rise to the global financial crisis have initiated the raising of guaranteed deposits coverage in all countries having their deposit guarantee scheme in place.
As a result of the financial crisis` spilling over from the American to European markets, individual EU Member States raised the coverage of guaranteed deposits in October 2008 from 50,000 € at the time to a full deposit amount.
At the same time, in order to protect the Montenegrin banking system from the global crisis effects and maintain its safety and stability, the Government of Montenegro decided to pass a set of special measures to preserve liquidity and solvency of banks operating in the country (Law on Measures for Protection of the Banking System, (OGM 64/08 as of 27 October 2008). This was an interim law which was effective until 1 January 2010.
In order to maintain the financial system stability and prevent deteriorations of the common market, the Directive 2009/14/EC was passed in March 2009 binding the EU Members States to the convergence of guaranteed deposits coverage and shortening of the payout period. The Directive set the minimum coverage level of 50,000 €, leaving the possibility to consider its increase to 100,000 €.
The key provisions set forth in directives regulating deposit guarantee schemes have been incorporated in the provisions of the new Deposits Protection Law (OGM 44/10) that came into effect on 7 August 2010.
In accordance with the directives, the Law:
- provides for the establishment of the deposit guarantee scheme that includes all banks in Montenegro and their branches operating abroad;
- provides for a gradual increase of the coverage level from 5,000 € to 50,000 € to begin with 20,000 € in 2010 and 2011 and increase to 35,000 € in 2012.
Novelties incorporated in the law also include:
- the manner of the guaranteed deposit calculation, prescribing that aggregate deposits of a depositor shall be reduced by the amount of his/her matured liabilities (previously by the amount of total liabilities), and
- the shortening of the guaranteed deposit payout period that shall begin no later than within 20 business days following the protected event date (previously this period was 60 days), with the possibility of extending this period for additional 10 business days upon a bank bankruptcy administrator’s request. The law also envisages a transitional solution involving a gradual shortening of the payout period to 45 days until 31 December 2011.