In the context of the global financial crisis, the Act of 15 October 2008 aims to promote financial stability by (i) establishing a system of state aid for commitments made by regulated institutions and (ii) granting state aid to the National Bank of Belgium for the reimbursement of any credit granted in order to ensure financial stability. This legislation is supplemented by two royal decrees, the Royal Decree of 16 October 2008 and the Royal Decree of 14 November 2008. The first decree contains implementing measures for the state aid system, while the second focuses on the protection of deposits through an increase in the maximum insured amount and the creation of a special protection fund for deposits and life insurance products in class 21.
1. Financial stability (Act of 15 October 2008)
Against the backdrop of recent developments affecting the financial markets, the Act of 15 October 2008 sets out to promote financial stability in two main areas:
- the federal government may, in the event of financial instability (i.e. any sudden crisis affecting the financial markets or a serious threat to the financial system):
- derogate from the provisions of the relevant legislation on the supervision of credit institutions, investment firms and insurance companies and on the financial sector;
- grant a state guarantee to various financial institutions for commitments made by these entities in accordance with the abovementioned legislation;
- when the National Bank of Belgium extends credit as a contribution to ensuring the stability of the financial system, the Belgian government will guarantee the reimbursement of all loans and any losses resulting from transactions required to ensure financial stability. The provisions of the new act entered into force on 17 October 2008, with the exception of the first measure which entered into effect retroactively on 9 October 2008 (i.e. the date on which the Belgian government granted a state guarantee to Dexia) and the second measure which entered into effect retroactively on 28 September 2008 (i.e. the date on which the National Bank of Belgium granted an emergency credit line to Fortis).
2. State guarantee (Royal Decree of 16 October 2008)
The Royal Decree of 16 October 2008 empowers the federal finance minister to grant state guarantees for specific commitments provided the following conditions are met:
- A state guarantee may only be granted for commitments entered into or renewed between 9 October 2008 and 31 October 2009 and which have a limited duration, i.e. expiring on 31 October 2011 at the latest.
- A state guarantee is only valid for commitments entered into by credit institutions or financial holding companies or their special purpose vehicles vis-à-vis other credit institutions or professional counterparties (as defined by the minister).
- A state guarantee may only be granted to an entity which has taken, or undertakes to take, any measures necessary to support its financial situation, solvency and liquidity.
- A state guarantee may only be granted provided it is in the interest of the Belgian economy and the protection of all depositors (i.e. a state guarantee shall only be granted to large institutions the failure of which could have a serious impact on the financial system).
- A state guarantee may only be called upon if the financial institution is unable to perform its guaranteed commitments as they fall due or when required to ensure the continuity of the entity.
This royal decree was published in the Belgian State Gazette on 20 October 2008 but has retroactive effect as from 9 October 2008.
3. Protection of deposits and life insurance products (Royal Decree of 14 November 2008)
From EUR 20,000 to EUR 100,000
Effective 7 October 2008, the amount insured by the Protection Fund for Deposits and Financial Instruments (Fonds de protection des dépôts et des instruments financiers/Beschermingsfonds voor deposito’s en financiële instrumenten) (“Protection Fund”) when a credit institution or investment firm defaults has been raised from EUR 20,000 to EUR 50,000 (i.e. the first tranche).
The Protection Fund offers two-fold protection:
- the first level of protection covers the loss of cash deposits and bank notes, bonds and other registered, dematerialised or uncovered banking debt instruments;
- the second level of protection comes into play when a client is no longer able to recover the financial instruments (registered, dematerialised or uncovered securities such as shares, bonds, etc.) entrusted to the defaulting institution.
From EUR 50,000 to EUR 100,000
The second tranche (from EUR 50,000 to EUR 100,000) is covered by the newly created Special Protection Fund for Deposits and Life Insurance Products (Fonds spécial de protection des dépôts et des assurances sur la vie/Bijzonder Beschermingsfonds voor deposito’s en levensverzekeringen) (“Special Protection Fund”).
Special Protection Fund
The following entities are obliged to participate in the Special Protection Fund:
- credit institutions;
- investment firms;
- branches of credit institutions and investment firms operating in Belgium and governed by the laws of another EU Member State and which have opted for membership in the Protection Fund;
- UCI management companies authorised to carry out individual portfolio management services.
Insurance companies may, upon their request, also gain membership in the Special Protection Fund, provided they are authorised to offer life insurance products with a guaranteed return in class 21. The protection provided by the Special Protection Fund will only enter into force as from the payment of annual contribution and admission fee due by the insurance company.
Once the request has been accepted, membership in the Special Protection Fund is mandatory for a period of one year, until 31 December of the year following that in which the protection entered into effect.
The Special Protection Fund protects:
cash deposits and bank notes, bonds and other registered, dematerialised or uncovered banking debt instruments denominated in euros or in the national currency of a Member State of the European Economic Area (“EEA”); deposits of funds held for the account of investors pending use for the purchase of financial instruments or reimbursement; life insurance with a guaranteed return, linked to class 21. Protection is only valid for clients who do not conduct banking, finance or insurance business.
Intervention of the Special Protection Fund The Special Protection Fund can intervene up to the amount of EUR 100,000, from which the first tranche of EUR 50,000 covered by the Protection Fund must be deducted. For life insurance products, which are not covered by the Protection Fund, the Special Protection Fund covers up to EUR 100,000.
Entry into force
The Royal Decree of 14 November 2008 entered into force on 17 November 2008, with the exception of articles 1 and 2 which entered into force on 7 October 2008.