It should be a reform to the taste of the new Federal Finance Minister Christian Lindner, who likes to emphasize personal responsibility. However, it is primarily the wealthy and companies that are affected, because customers of private banks such as Commerzbank or Deutsche Bank will “only” enjoy maximum protection of up to one million euros per bank through the deposit insurance of private banks from 2030 onwards. The previously almost unlimited protection is gradually being removed: from January 1, 2023, private savers and foundations are still covered up to a maximum of five million euros per bank, from 2025 only with three million euros. In addition, the group of those who can get compensation from the pot will be reduced: From 2023 professional investors such as insurance companies, investment companies and public corporations and broadcasters, for example broadcasters, will be excluded.
The reform – driven by the banking association in which the private financial institutions are organized – is the result of the bankruptcy of the Greensill Bank in Bremen, which had to be closed almost a year ago after it got into trouble with the British-Australian parent company. In order to finance the mother’s business, the bank had collected around three billion euros in savings with comparatively attractive fixed-term deposit conditions, partly through interest rate platforms such as Weltsparen or Zinspilot. The Bremen public prosecutor’s office has been investigating the suspicion of falsification of the accounts since then.
It is true that all private customers and also some institutional customers got their money reimbursed by the deposit insurance of the private banks. After that, however, the institutes had to laboriously refill the common safety jar. A debate had broken out in the professional world as to whether the deposit insurance system might be setting the wrong incentives by extensively protecting savings deposits. Up to 100,000 euros, all banks in Germany have a statutory deposit insurance policy anyway. Private banks, as well as savings banks and Volksbanks, have so far protected the deposits of their private customers almost indefinitely.
Deutsche Bank boss Christian Sewing, who is also president of the banking association, described the Greensill case as “a turning point after which we could not just go on like this”. It is about removing “false incentives” from the system. The voluntary additional deposit protection of the private banks in Germany is still the highest, measured against all European countries. Chief Executive Christian Ossig said that the core idea of the reform was “that we want to protect people who cannot professionally assess a bank’s risk, these are natural persons and that is the German middle class”.
Numerous municipalities invested unprotected
Deposit protection for companies is also restricted. An upper limit of 50 million euros will apply to them from 2023, this will drop to 30 million euros in 2025 and will still be a maximum of ten million euros per bank in 2030. Savings deposits from cities and municipalities have been excluded from deposit protection since October 2017. Nevertheless, numerous municipalities had invested a total of around 350 million euros in Greensill Bank and will probably not get their money back. In the case of the city of Monheim in North Rhine-Westphalia, the plant in Bremen even led to a loss of 38 million euros.
The taxpayers’ association recently criticized it in its Black book the investment behavior of the municipalities. It was “well known” that the deposits are not protected, the club criticizes. Nevertheless, around 40 German regional authorities had entrusted their money to the bank in Bremen, although they could have been warned: The money house had promised “returns that were above market conditions”. In view of the low interest rates and rampant penalty interest rates, this was “obviously an all too great temptation for many mayors and treasurers”, criticized the taxpayers’ association. Many investments were made “despite rigid investment regulations for the municipalities and warnings from the bank”. Some municipalities are now trying to sue advisors for damages who brokered the fixed-term deposits.