Circular 3/2011 of the Bank of Spain on Additional Contributions to Deposit Guarantee Funds

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Circular 3/2011, of June 30, from the Bank of Spain, to entities affiliated with a deposit guarantee fund, regarding additional contributions to deposit guarantee funds. (BOE of July 2)

The new subsections 2 bis and 2 ter of Article 3 of Royal Decree 2606/1996, of December 20, on deposit guarantee funds (introduced by the first final provision of Royal Decree 771/2011, of June 3), provide for the requirement of additional contributions to existing funds for those affiliated entities that enter into time deposits or settle current accounts with remunerations that exceed certain interest rates, depending on the term of the deposit or its current account nature.

Such additional contribution would result from the weighting, at 500%, of the deposits entered into or settled that exceed said rates, in the calculation base that could determine the ordinary contributions (that is, 400% above the weighting that would determine their potential inclusion in said base), and would be articulated through the quarterly payment of the result of applying said over-weighting. By this means, the ordinary contributions that entities should have made will not be altered.

The object of this Circular is to issue the necessary rules to allow the application of the new subsections 2 bis and 2 ter cited, in exercise of the authorization provided for this purpose, especially in the first final provision of the same Royal Decree 2606/1996 (after the modification promoted by Royal Decree 771/2011).

To this end, the Circular establishes two types of rules. Some, dedicated to identifying what should be understood as the remuneration of a deposit in different practical scenarios. Others, oriented to regulate instrumental elements of the calculation of the additional contribution now provided for in Royal Decree 2606/1996, on the basis that, as established in its Article 3, subsection 2 bis, before the 5th day of each month following the end of each natural quarter, the Bank of Spain will publish the interest rates that, if exceeded, will give rise to such contributions. In the case of current accounts, all can generate additional contributions, particularly those already open upon the entry into force of the regulation; therefore, a transitional period is established for accounts opened prior to this to allow entities to modify current interest rates. On the other hand, time deposits that may give rise to potential additional contributions are only those entered into after July 4, 2011, the date of entry into force of the new rules, and for them a brief transitional period is contemplated so that entities can issue pertinent instructions to their branch networks.

Consequently, in exercise of the powers granted, the Governing Council of the Bank of Spain, upon proposal of the Executive Committee, has approved this Circular, which contains the following rules:

First Rule.

Definition of deposit and remuneration.

For the purpose of determining the deposits and remuneration that must be taken into account to apply the treatment provided for guaranteed deposits in subsections 2 bis and 2 ter of Article 3 of Royal Decree 2606/1996, of December 20, on deposit guarantee funds (introduced by the first final provision of Royal Decree 771/2011, of June 3), entities affiliated with deposit guarantee funds in banking establishments, savings banks, and credit cooperatives shall take into account the following criteria:

a) Guaranteed deposits shall be considered all deposits covered by the respective deposit guarantee fund in accordance with the provisions of Bank of Spain Circular 4/2001, of September 24 (modified by Circular 1/2006, of February 24), to entities affiliated with a deposit guarantee fund, regarding information on the balances that make up the calculation base for contributions to deposit guarantee funds, and the scope of guaranteed amounts (hereinafter, Circular 4/2001), including in particular monetary resources corresponding to investment services and hybrid financial instruments.

b) For the breakdown of guaranteed deposits into current and time deposits, the provisions in effect for accounting purposes in subsection 9 of the sixtieth-fourth rule of Bank of Spain Circular 4/2004, of December 22, to credit institutions, on public and reserved financial information standards, and financial statement models (hereinafter, Circular 4/2004) shall be followed. For the same purpose, deposits with notice shall be treated, if any, as current deposits, and monetary resources corresponding to investment services shall be broken down by nature into current and time deposits. New placements in a time deposit shall be considered new deposits.

Time deposits that have the nature of hybrid financial instruments shall be computed at their book value without considering, if any, valuation adjustments, or, if higher, at the minimum redemption value that the entity may have guaranteed. When the entity has guaranteed more than one minimum redemption value, the largest of the committed ones shall be taken.

When a hybrid financial instrument is marketed jointly with a deposit that does not have such nature, they shall be treated separately.

c) Remuneration shall comprise any remuneration or payment, in cash or in kind, explicit or implicit, for the maintenance of the deposit, regardless of the date on which it is credited to the customer. In the case of remuneration in kind, the value to be considered as remuneration shall be that resulting in accordance with tax legislation, including, when borne by the entity, the advance payment that it must make for such remuneration.

d) The interest rate to be used to determine remuneration shall be, in the case of time deposits, the agreed annual nominal rate or, failing this, the effective annual interest rate, and that of the settlement in current accounts.

e) In the case of time deposits with variable interest rates, the remuneration resulting from applying the corresponding reference index on the date of contracting for the entire agreed term shall be taken as remuneration, without considering possible modifications in the future.

f) In time deposits where the maximum interest rate is subject to the fulfillment of some condition, such as, for example, keeping the payroll domiciled for the entire life of the deposit or at each moment of interest accrual, it shall be presumed that the condition is fulfilled.

g) In the case of time deposits with different interest rates throughout the duration provided for therein, the average of rates shall be taken, weighting each one by the time it is planned to be applied.

h) Commissions or expenses charged to the customer, whether for maintenance, administration, or any other service charged to the customer, shall not be deducted from the deposit remuneration.

i) In hybrid financial instruments, where the implicit derivative does not share similar characteristics and economic risks with the main contract as indicated in subsection 16 of the twenty-first rule of Circular 4/2004, the interest rate to be used to determine their remuneration shall be the maximum annual percentage of remuneration that the depositor may charge on the deposited amount, if it is higher than the effective annual interest rate corresponding to the main contract once the implicit derivative is segregated; failing that, only this shall be taken. In any case, additional remunerations provided for in the contract, whether in cash or in kind, must be added.

For these purposes, the amount imputed to the implicit derivative shall be estimated in accordance with the provisions of subsection 17 of the twenty-first rule of Circular 4/2004.

Second Rule.

Deposits weighted at 500%.

For the purpose of calculating the additional contributions required by subsections 2 bis and 2 ter of Article 3 of Royal Decree 2606/1996, of December 20, an additional 400% weighting shall be applied, and thus reflected in the statement attached to this Circular:

a) The initial balances of time deposits whose remuneration, defined in accordance with the provisions of the preceding rule, exceeds the interest rates referred to in letter a) of the aforementioned subsection 2 bis.

To this end, the remuneration of time deposits shall be compared with the different interest rates published taking into account the duration resulting from considering the entire initially agreed term, without taking into account potential partial amortizations agreed in the contract. Subsequent renewals, whether provided for in the original contract or not, shall be considered as new deposits.

b) The average balances of current accounts whose remuneration, defined in accordance with the provisions of the preceding Rule, exceeds the interest rates referred to in letter b) of the aforementioned subsection 2 bis. The average balance shall be the result of dividing the sum of the daily balances of each current account by the number of natural days comprising each settlement.

When the periodicity of the agreed settlement is greater than three months, entities shall perform a theoretical closing and a theoretical settlement of the account at the end of each natural quarter (September 30, December 31, March 31, and June 30 of each year), taking the theoretical remuneration applied at that moment as the determinant for weighting the balance by an additional 400%.

c) To determine whether the deposit remuneration exceeds the corresponding interest rate published by the Bank of Spain, the rate published for the corresponding term, or for current accounts, at the beginning of each natural quarter shall be compared, regardless of the currency in which the deposit is denominated, with the remuneration of time deposits entered into, and with that of settlements practiced (agreed or theoretical) of current accounts, in quarterly periods that will begin on the 15th of the same month in which the reference interest rate is published (October, January, April, and July of each year) and will end on the 14th of the third month following (January of the following year, April, July, and October, respectively).

Third Rule.

Calculation and payment of additional contributions.

For the calculation of additional contributions, affiliated entities shall complete the statement attached to this Circular and submit it to the Bank of Spain before the end of the month following each natural quarter.

In said statement, along with the initial balances of time deposits entered into in the quarterly period subject to declaration, broken down by the terms for which they are entered into, and the average balances of current accounts settled (actually or theoretically) in the quarterly period, whose remuneration exceeds the published interest rates with which they must be compared, these same balances weighted, on an annual basis (that is, weighted by the result of dividing their original term in days by 365), as well as the original average term, in natural days, of the declared deposits, shall appear.

The submission of the statement must be made via electronic transmission in accordance with the technical specifications communicated for this purpose.

The Bank of Spain shall issue to each fund, within a maximum period of 10 business days from the last day on which said declaration can be submitted, the corresponding settlement of additional contributions against the account of the interested entity, applying to the calculation base constituted by the aggregation of the quadrupled weighted balances, the percentage of ordinary contribution corresponding to each entity according to the fund in which it is integrated.

Fourth Rule.

Modification of Circular 4/2001, of September 24, on information regarding the balances that make up the calculation base for contributions to deposit guarantee funds, and the scope of guaranteed amounts.

The following is added at the end of note h. of Annex 1 [1]: "When the entity has guaranteed more than one minimum redemption value, the largest of the committed ones shall be taken".

[1]

Text incorporated into Circular 4/2001, of September 24.

Transitional Provision.

Time deposits constituted before July 15, 2011, and current accounts constituted prior to the entry into force of this Circular that are settled (actually or theoretically) in the first declaration period ending on October 14, 2011, whose remuneration exceeds the corresponding interest rate published by the Bank of Spain in July 2011, shall not be included in the corresponding attached statement for said quarterly period. Consequently, the balances of current accounts shall not be subject to the eventual payment of additional contributions in said declaration, but will be in subsequent quarterly periods.

Entry into Force.

This Circular shall enter into force on July 4, 2011.

ANNEX

Base for the calculation of additional quarterly contributions to the Deposit Guarantee Fund (Royal Decree 2606/1996, subsections 2 bis and 2 ter of Article 3)

ANNEX-C-3-2011.PDF (87 KB)

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