Court test for bank deposit legislation

Date: 17/10/1996

MOVES to boost consumer protection for bank customers are being overshadowed by a German court challenge to EU legislation designed to safeguard depositors.

Germany is contesting the bank deposit guarantee directive, which sets a minimum level of 20,000 ecu compensation for customers whose bank goes under.

The long-stalled case is now set for a European Court of Justice hearing on 5 November.

Bonn maintains that the bank guarantee directive is one-sided and discriminates against its own advanced consumer protection rules.

The directive bans German banks from applying their more generous domestic guarantee scheme if they set up a branch in another Union country. At the same time, it allows other EU banks operating on German soil to 'trade up' and match local banks' guarantees. The German guarantee allows individual depositors to claim back up to 1&percent; of the bank's own capital if it fails.

A bank guarantee fund was supposed to be put on national statute books by July 1995, but a third of EU countries have yet to act. These are Germany, Spain, Luxembourg, Italy and Austria.

The German court case is likely to have a knock-on effect on a current Commission proposal which seeks to provide a safety net for investors whose investment firm collapses.

The proposed investor compensation directive is designed along exactly the same lines as the banking measure, and is therefore also likely to attract German opposition.

In addition, the Irish presidency is trying to push forward controversial moves to force banks to compensate customers if they delay or fail to process cross-border payments properly.

The cross-border credit transfers directive is currently the subject of conciliation talks between the Council of Ministers and the Commission on the one hand, and the European Parliament on the other.