BVR protection scheme

How long has the BVR protection scheme been in place?
The BVR protection scheme is Germany’s first deposit guarantee fund for banks and is financed entirely without government support. Since its creation in the 1930s as a consequence of the global economic and banking crisis, it has always ensured that all affiliated banks have been able to meet their financial obligations, particularly with regard to the deposits of retail customers. The protection scheme run by the Cooperative Financial Network is therefore the world’s oldest exclusively privately financed deposit guarantee fund for banks.  

Since its establishment in 1934:
 

• no compensation has ever had to be paid to depositors because - thanks to the system of bank protection in place - no compensation event has ever occurred;
• no customer of an affiliated bank has ever lost their deposits as a result of a cooperative bank becoming insolvent;
• no affiliated bank has ever become insolvent.

As a Cooperative Financial Network facility that has been in place for decades, the BVR protection scheme has the task of ensuring that customers, money markets, and capital markets always have confidence in the Cooperative Financial Network. It does so – as stipulated in clause 1 of its own statutes – by averting or remedying impending or existing financial difficulties at its affiliated institutions (‘bank protection’) and thereby ensuring comprehensive protection for customers’ deposits. In performing this function, the protection scheme mainly implements preventive measures aimed at averting adverse trends at the affiliated institutions and, if necessary, takes measures to restructure the institutions concerned. Since the new national deposit insurance legislation came into effect on July 3, 2015, the BVR protection scheme has been supplemented by BVR Institutssicherung GmbH, which is recognized as a statutory deposit guarantee system. This provides customers’ deposits with a form of dual protection.

The European Union (EU) initiated Banking Union as a political response to the financial and sovereign debt crisis. Banking Union consists of common banking supervision by the European Central Bank (ECB), a common bank resolution mechanism, a common set of rules for banks, and a deposit guarantee scheme – based on common standards – for each EU member state. The European Commission’s efforts to harmonize existing deposit insurance schemes led – from mid-2010 onward – to the amendment of the previous EU deposit guarantee directive adopted in 1994. The recast Deposit Guarantee Schemes Directive (DGSD) was entered in the EU’s Official Journal in June 2014. The legally binding period for implementing the national legislation to be framed on the basis of the DGSD ended on July 3, 2015. This date saw the enactment in Germany of the so-called DGSD Implementation Act, the core of which is the German deposit insurance legislation (EinSiG).

New legislation emphasizes depositor compensation
The EU directive and the German deposit insurance legislation emphasize the idea of an efficient system of depositor compensation in addition to their support for bank customers’ vested interest in the safety of their deposits, which the BVR protection scheme has already been guaranteeing for decades. In order to meet this requirement – which is new for a bank-protection scheme such as that of the cooperative banks – while continuing to offer the same level of protection, the BVR’s system of bank protection has been refined and BVR Institutssicherung GmbH (BVR-ISG) has been set up. This ensures that the current high level of protection provided for the customer deposits of the cooperative banks affiliated to the BVR-ISG will be maintained even under the new legislation while, at the same time, the new requirements applicable throughout Europe are fulfilled. By virtue of its function as a bank protection scheme as specified in its statutes, the BVR-ISG has been officially recognized as a deposit insurance system and fulfills the statutory remit of ensuring that depositors affected by a bank’s insolvency are compensated in accordance with national deposit insurance legislation. In addition, it is legally authorized to take measures to avert any threats posed to a bank’s continued existence as a going concern, i.e. to prevent its insolvency. The BVR protection scheme, which has already been running successfully for more than 80 years, will operate alongside the BVR-ISG. This dual system of an officially recognized deposit insurance scheme supplemented by a voluntary bank-related protection system will ensure stability and confidence in the cooperative banking group. 

The BVR protection scheme covers all of the BVR’s member institutions. These include all local cooperative banks, PSD banks, Sparda banks, church cooperative banks, Deutsche Apotheker- und Ärztebank, BBBank, cooperative central bank DZ BANK, cooperative mortgage banks, and other specialized institutions in the Cooperative Financial Network such as Bausparkasse Schwäbisch Hall.

Since July 3, 2015, all banks in Europe have been legally obliged to provide their customers at least once a year with written confirmation that the bank to which they have entrusted their money is affiliated to a legally recognized deposit insurance scheme. The scope of this information is governed by common Europe-wide standards and in Germany is specified in section 23a of the German Banking Act (KWG). The relevant banks will notify their customers accordingly; further pertinent details can be found at www.bvr-institutssicherung.de.

In addition, customers of German cooperative banks can obtain confirmation that their bank belongs to a deposit insurance scheme by asking it to provide a certificate documenting its affiliation to BVR Institutssicherung GmbH and its membership of the BVR protection scheme. Customers can also contact the BVR protection scheme by letter or email and request information to this effect. 

The task of a bank-related protection scheme such as the one run by the BVR is to avert or remedy impending or existing financial difficulties at its affiliated banks, i.e. to prevent insolvencies. This involves restructuring affiliated banks in financial difficulties in such a way that they are then able to meet their legal obligations in full. The BVR protection scheme also acts preventively to identify any adverse financial trends at cooperative banks as quickly as possible, to provide valuable support to the institutions concerned throughout their financial restructuring and, therefore, ultimately to prevent financial resources from having to be withdrawn from the protection fund. If, however, such funds do have to be utilized in the event of restructuring, the first task is to ensure that the relevant institutions’ annual financial statements are able to receive an unqualified auditors’ opinion by making the necessary cover funds available to German cooperative banks. The banks concerned are then financially restructured. The objective here is to prevent banks from becoming insolvent and, consequently, avert the need for depositors to be compensated. The fact that the BVR protection scheme has never had to pay compensation to depositors during its over 80-year history is attributable, above all, to this protection that it provides for banks – which in turn protects the deposits.

What sorts of deposits are protected? The BVR protection scheme always covers
 

• customer deposits, mainly consisting of savings deposits, savings certificates, time deposits, and sight deposits;
• bearer bonds issued by affiliated institutions and held by customers.
   

For further details of the scope of protection, see sections 1 (4) and 35 of the protection scheme’s statutes and no. 1 of the procedural rules of the statutes.

The protection scheme run by the BVR aims to protect all non-bank customers (individuals and legal entities that are not banks) of the affiliated institutions. Funds provided to affiliated institutions by banks outside the Cooperative Financial Network (e.g. Germany’s KfW development bank) for purposes supported by public subsidy are also protected.

The BVR’s protection scheme is a self-help organization of the Cooperative Financial Network that was formed voluntarily and is constituted and managed under private law. It operates on the basis of its statutes (version of January 2024), which form an integral part of the BVR’s Articles of Association. The BVR protection scheme provides additional, cooperative protection as part of the so-called dual system alongside BVR Institutssicherung GmbH, which is a bank-related protection scheme constituted and managed under private law and is officially recognized as a deposit guarantee scheme pursuant to section 43 EinSiG.

The BVR prepares annual financial statements and an annual report on the activities and financial position of the protection scheme. They are audited by an independent auditor outside the Cooperative Financial Network. As required by section 39 of the statutes of the BVR protection scheme, they are sent to the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) [German Federal Financial Supervisory Authority], Deutsche Bundesbank, the cooperative auditors’ associations, and the Administrative Board of the BVR. The Administrative Board monitors how the BVR Board of Managing Directors runs the protection scheme. 

The BVR protection scheme is regulated and monitored by the German Federal Financial Supervisory Authority. BaFin also has the right to obtain information from, and audit, the protection scheme in accordance with section 44 (1) KWG.