Study Findings: The Institutional Protection Scheme of the German Cooperative Banking Network is Efficient and Reliable - Standardising Deposit Guarantee System in Europe is the Wrong Approach

By National Association Of German Cooperative Banks bvr, PRNE
Monday, November 8, 2010

BERLIN, November 9, 2010 - The institutional protection scheme of the German Cooperative Banking
Network (Genossenschaftliche FinanzGruppe Volksbanken Raiffeisenbanken) is
efficient, reliable and equivalent to a properly designed deposit guarantee
scheme - these are the findings of a study about the importance of and
outlook for institutional protection schemes, which was carried out by the
Cologne Institute for Economic Research (IW) in cooperation with the
University of Cologne, and was commissioned by the National Association of
German Cooperative Banks (BVR). The researchers warn against implementing the
European Commission's current proposed directive, which they say would result
in over-regulation and create a series of false incentives.

According to the proposal submitted in July 2010 to reform European
deposit guarantee systems, the European Commission intends to limit deposit
insurance coverage to EUR 100,000 per investor. In contrast, the
institutional protection scheme in place at the Cooperative Banking Network
is designed to preserve the affiliated institutions from default, thereby
protecting customer deposits to the maximum possible extent, without
limitation as to the amount.

"So far, the BVR institutional protection scheme has always been able to
achieve its objectives without ever having to call on government assistance.
Furthermore, the member cooperative banks remained stable during the
financial markets crisis thanks to their liability arrangement," commented Dr
Manfred Jäger-Ambrozewicz of the IW. He also said that, while the European
Commission's proposed Deposit Guarantee Directive is aimed at Europe-wide
harmonisation of the investor compensation process in the event of a bank
failure, the BVR institutional protection scheme ensures that such a
situation does not arise in the first place. The analysts described the
proposals outlined in the Commission's directive as "flawed", due to the
extent to which they would restrict options for structuring institutional
protection schemes. A properly designed proposal for a directive, they say,
must ensure that the focus on the prevention characteristics of institutional
protection schemes is retained in future, in view of its effectiveness.

The study also concludes that, even compared to schemes in place in other
countries, the institutional protection scheme employed by the German
Cooperative Banking Network already meets the current proposed requirements
that were developed under the overall responsibility of the Bank for
International Settlements (BIS) in Basel and the IMF in Washington, and that
are soon to come into force. The study said that the BVR institutional
protection scheme is in fact more effective than deposit guarantee schemes,
which do not afford failure protection to member institutions under a shared
liability arrangement. Less capital is required, it claimed, because of three
features: the focus on prevention, which allows early identification and
combating of potential crisis situations; the structure of the Cooperative
Banking Network, which serves to diversify risk across many, primarily
smaller, banks; and the business model employed by the German cooperative
banks, which is oriented around sound practices in deposit and lending.

BVR President Uwe Fröhlich comments: "The study shows that effective
consumer protection, which is the aim of the European Commission's Deposit
Guarantee Directive, is already being fully afforded by the BVR institutional
protection scheme by virtue of its group liability mechanism. We are calling
on the European Commission to rethink its approach and replace its drive for
maximum standardisation with a move towards appropriate deposit guarantee
system requirements. This would ensure that tampering with proven guarantee
schemes would be kept to a strict minimum."

The complete study is available at

About the study:

The study entitled "Mutual Guarantee Schemes: Importance and Outlook"
("Bedeutung und Zukunftsfähigkeit von Institutssicherungssystemen") was
commissioned by the BVR, and jointly developed and carried out by the Cologne
Institute for Economic Research (IW) and the University of Cologne
(Department of Business Administration and Banking). It was authored by Dr
Manfred Jäger-Ambrozewicz (IW Cologne) and Professor Thomas Hartmann-Wendel
(University of Cologne).

About the BVR institutional protection scheme:

The BVR institutional protection scheme is the world's oldest, 100%
privately financed banking protection system. For decades this system has
ensured that no customer of a cooperative bank has ever lost a cent on
deposits. The BVR institutional protection scheme ensures that each bank is
able to meet its obligations at all times. Bank failures and paying out on
depositor insurance claims are unknown to the Cooperative Banking Network.

    National Association of German Cooperative Banks (BVR)
    Melanie Schmergal
    Phone: +49[30]-2021-1301
    Fax: +49[30]-2021-1905

National Association of German Cooperative Banks (BVR): Melanie Schmergal, Phone: +49[30]-2021-1301, Fax: +49[30]-2021-1905, mailto:presse at

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