The failure of a banking institution represents a major risk for its customers. Whether you are an individual with a single current account or a business managing several lines of credit, the consequences can be severe. This article explores the mechanisms for preventing and dealing with banking difficulties, as well as the protection available to depositors.
Preventing banking difficulties
The role of the Autorité de contrôle prudentiel et de résolution (ACPR)
The ACPR constantly monitors the financial health of credit institutions. Created by Order no. 2010-76 of 21 January 2010 and strengthened by the Act of 26 July 2013, it has extensive powers to detect and prevent risky situations.
According to Article L. 612-1 of the Monetary and Financial Code, the ACPR is responsible for :
- Checking compliance with prudential rules
- Protecting customers
- Preventing and resolving banking crises
Warning indicators
Banks must comply with strict ratios concerning :
- The level of own funds (minimum solvency ratio of 8%)
- Liquidity (minimum coefficient of 100%)
- Division of risk (no more than 25% of own funds for any one beneficiary)
These requirements, derived from Regulation (EU) No 575/2013, are the first line of defence against failure.
Provisional administration
When the situation deteriorates, the ACPR may appoint a provisional administrator. Article L. 613-18 of the Monetary and Financial Code specifies that this administrator assumes "all powers of administration, management and representation of the legal entity".
This measure is generally taken before the bank is in suspension of payments.
Dealing with banking difficulties
Specific collective proceedings
A bank's cessation of payments is subject to a specific definition. Article L. 613-26 of the French Monetary and Financial Code defines it as the bank's inability "to ensure its payments, immediately or in the near future".
Collective proceedings can only be opened after the ACPR has given its opinion (article L. 613-27), unlike under ordinary company law.
Bank and court-appointed liquidators
In the event of liquidation, there are two liquidators:
- A liquidator appointed by the ACPR (article L. 613-29)
- A court-appointed liquidator
The former deals with specific inventories and banking transactions, while the latter manages the general aspects of the liquidation. The Court of Cassation clarified their respective roles in a ruling dated 17 April 2019 (no. 18-11.743).
European coordination
Since Directive 2001/24/EC of 4 April 2001, transposed by Order 2004-1127 of 21 October 2004, bank insolvency proceedings have been governed by the principle of unicity. Liquidation is managed by the authorities of the country in which the bank has its registered office.
This coordination avoids the fragmentation of procedures and assets between different countries.
Protecting depositors
The Deposit Guarantee and Resolution Fund (FGDR)
The FGDR, renamed by the law of 26 July 2013, intervenes when the ACPR finds that an institution can no longer return the funds entrusted to it.
All credit institutions authorised in France are required to join (article L. 312-4 of the French Monetary and Financial Code).
Compensation ceiling
The FGDR guarantees deposits up to €70,000 per depositor and per institution. This amount, set by CRBF regulation 99-05 of 21 July 1999, has been maintained, whereas the standard European guarantee is €100,000.
This limit applies to all accounts held at the same bank, not to each account separately.
Compensation procedure and deadlines
Once the ACPR has established that the funds are unavailable, the FGDR has 20 working days to compensate depositors. In practice, these deadlines are often shorter.
Claims excluded from the scheme must be declared in accordance with the standard insolvency procedure.
Customer recourse
Customers of a failing bank have several means of redress:
- Statement of claim in insolvency proceedings
- Liability action against directors (Article L. 312-6 of the Monetary and Financial Code)
- Appealing against FGDR decisions
Article L. 312-6 specifies that the FGDR may itself "initiate any liability action against the de jure or de facto managers of the institutions for which it intervenes".
Customers who have suffered losses in excess of the guarantee ceiling can obtain additional reimbursement based on the assets recovered in the liquidation. But this often takes several years.
Sources
- Monetary and Financial Code, articles L. 511-41, L. 612-1, L. 613-18, L. 613-26, L. 613-27, L. 613-29, L. 312-4, L. 312-6
- Order no. 2010-76 of 21 January 2010 merging the banking and insurance licensing and supervisory authorities
- Law no. 2013-672 of 26 July 2013 on the separation and regulation of banking activities
- Directive 2001/24/EC of 4 April 2001 on the reorganisation and winding-up of credit institutions
- Order no. 2004-1127 of 21 October 2004 transposing Directive 2001/24/EC
- CRBF Regulation 99-05 of 21 July 1999 on deposit guarantees
- Regulation (EU) no. 575/2013 on prudential requirements
- Judgment of the Court of Cassation, Commercial Chamber, 17 April 2019, no. 18-11.743
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