Main Features of EU Directive 2009 - Essay Example

EU directive 2009/14/EC DIRECTIVE 2009/14/EC is the amending directive of the European Parliament as well as of the Council of the European Union onthe deposit-guarantee schemes. These schemes are regarded as the coverage level as well as the payout delay. This directive has been implemented on March 11, 2009 (Warren, n.d., p.48). This directive has been established as the treaty within the European Community, being regarded as the proposal from the European Commission (Jovanovic, 2011, p.420). This paper is aimed at providing the features of the directive as well as the critical evaluation of the importance of the directive and new funding proposals contained within the directive. Features of the directive: On October 7, 2008, the European Council agreed that it is very much important to restore the confidence along with proper functioning and working capabilities of the union’s financial sector. Hence, the directive has been implemented for the purpose of taking necessary measures in the financial sector. These measures have been taken for the purpose of protecting the amounts of deposits of the individual savers of the company. Measures have also “welcomed the intention of the Commission to bring forward urgently an appropriate proposal to promote convergence of deposit-guarantee schemes”. Although Directive 94/19/EC has been implemented in the Council for providing these financial and depository supports, the financial and economic crises during the time period of 2007 and 2009 increased the necessity for implementing much stricter policies within the Community. In the Directive 94/19/EC EUR 20, 000 of total deposit amounts have been covered by the financial policy of the Union for the member states. But this amount had not been proven to be sufficient for the large amounts of money and assets deposited by the member states of the Community. Therefore, for maintaining the depositors’ confidence and also to attain greater level of stability in the Community’s financial markets the minimum level of coverage has been increased to EUR 50, 000 in 2009. Then in December 31, 2010, this coverage amount has further been increased to EUR 100, 000 (DIRECTIVES, 2009, p.68/3). However, during this time the impacts assessment of the European Parliament and the Council has concluded that these increments in the amount of coverage is inappropriate and are not at all financial viable for the member states of the European Union for providing protection and stability. Hence, the need for new proposals has been suggested by the Union. In the directive of 2009, it has been suggested that the coverage will be applied to all depositors regardless of the fact the member state under consideration uses Euro as their currency or not. It has also been suggested that those member states which use Euro as their currency are need to round off the coverage amounts which has been resulted from the conversion. This conversion needs to be made without compromising the equal level of protection of the depositors. In a report which has been submitted to the European Parliament as well as to the Council by the European Commission various analysis regarding the set-offs and the counterclaims have been mentioned. Also the determination of different contributors to schemes and the scopes of various products and different depositors have been covered. Apart from these the efficiency of cross-border cooperation and collaboration ‘between deposit-guarantee schemes and the link between deposit-guarantee schemes and alternative means for reimbursing depositors, such as emergency payout mechanisms’ have also been featured in the directive. In this context the most important feature of this directive has been that on these issues all member states need to collect and submit data to the Commission (DIRECTIVES, 2009, pp.68/3). During this time some member states have been Directive 94/19/EC which has been providing full coverage long-term deposits of certain kinds, like claims on pensions. With the help of those schemes it became necessary to respect various rights and expectations of different depositors in those schemes. Under these circumstances, some member states started to establish or they planned to establish various deposit-guarantee schemes. These schemes have been established under the Directive 94/19/EC for the purpose of providing full coverage for specific types of temporarily raised account balances. With the introduction of the new directive in 2009, the Commission has been suggested to give cost-benefit assessment of such full coverage. In the directive of 2009, the functioning of the financial system of the Commission, which have been described as the process of protection of the credit institution of the Commission and also as the process of ensuring the liquidity and solvency of those credit institutions, have been featured. These protections and assurances have been providing greater level of supports and overall protection to the depositors almost identically to the deposit-guarantee scheme. However, the voluntary schemes of the depositors of the member states were not officially recognised and introduced in this directive (DIRECTIVES, 2009, pp.68/4). Another important feature of this directive has been that all member states have been suggested to encourage those deposit-guarantee schemes. These encouragements have been suggested for considering the entering perspectives of depositors into agreements as well as perspectives for improving existing agreements regarding respective obligations of these member states (Daelen and Elst, 2010, p.161). The time period for delay of payment has been extended from three months to nine months in this directive. In this regard in order to maintain the confidence of depositors and also the stability in the financial market member states have been suggested to report about the delay within 20 working days. But provisions have been kept regarding the extension of the period of delayed payout under certain specified circumstances in the collaboration with the approval of the competent authorities. In 2011, further reports have been submitted by the Commission to the European Union and to the Council regarding the reduction in the period of delay payout to 10 working days. In this directive the period for delay payout has been suggested to be 21 working days. This period has been suggested for the purpose of not creating cases with impeded rapid payout. In this directive various other issues have been mentioned. Among these issues one of the most important one has been that competent authorities have been suggested to first get satisfied with the fact that the credit institution under consideration have failed to repay the deposit which have been due or payable. This assessment has been suggested to be conducted by the judicial or by the administrative procedures of all the member states. In the directive it has also been argued that "deposits may be considered unavailable once early intervention or reorganisation measures have been unsuccessful. This should not prevent competent authorities from making further restructuring efforts during the payout delay” (DIRECTIVES, 2009, pp.68/4). Another important feature of the directive has been suggestions given to the member states regarding the assurance in the process of maintaining continuity in the banking services as well smooth access to the liquidity of these banks. These assurances have been suggested to be given mainly at the time of economic and financial turmoil based by the Commission. In this context the member states have been ‘encouraged to make arrangements as soon as possible for ensuring emergency payouts of appropriate amounts upon the application of the affected depositor, within no more than three days of such application’. Along with this, the member states as well as deposit-guarantee schemes of these member states have been suggested that they need to ensure that the delay for the payout is as minimal as possible. This policy has been implemented since the reduction in the current payout delay of the period of three months has been expected to positively affect the confidence level of the depositors and also the efficient functioning of financial markets of these member states. Directive 94/19/EC has implemented the policy where the member states have been encouraged to limit the amount of coverage to a certain percentage. In the directive of 2009 these policies have been demonstrated to be very effective in undermining the confidence of the depositor and thus have been suggested to be discontinued by the member states. Therefore, in June 28, 1999 with the introduction of the Council Decision 1999/468/EC accordance has been implemented to lay down the procedures for the practice of implementing powers which were conferred on the Commission (DIRECTIVES, 2009, pp.68/4). In the directive of 2009, the Commission has been suggested to be empowered with the capacity of executing the process of coverage level. This coverage has been suggested to be considered according to the expectation and realisation of inflation in the Union which has been considered by the introduction of basic changes in the harmonised consumer price index published by the European Commission. The most important feature of the directive has been the harmonisation of the payout delays as well as of the coverage levels. But these goals have not been achieved by the member states of the European Union and have been achieved with comparatively better results at the Community level (Jennen and Vijver, 2010, p.97). Therefore, in the treaty of 2009 Community have been suggested to adopt greater measures to achieve these goals. As a result the Directive 94/19/EC has been amended in this direction. Hence, in the directive the following has been argued that “in accordance with point 34 of the Interinstitutional Agreement on better law-making, Member States are encouraged to draw up, for themselves and in the interest of the Community, their own tables illustrating, as far as possible, the correlation between this Directive and the transposition measures and to make them public, have adopted this directive” (DIRECTIVES, 2009, pp.68/4-68/5). Among other important features of the directive the following were crucial. At most five working days have been given to credit institutions to make the delayed payout. Member states have been suggested to make greater cooperation in the process of execution of deposit-guarantee schemes. The Commission has been suggested to review the functioning of the financial markets as well as of amendments of the directive. The member states have also been suggested to monitor the maintenance of the pre-specified amount of coverage under those specified circumstances. The Commission and the member states have also been suggested to include greater cooperation in terms of execution of banking and financial decisions in the face of the financial and economic crises situations which have been providing significant negative impacts upon the financial system as well as economic structure of those member states of the European Union. In this context these member states and the Commission have been suggested to analyse the costs and benefits associated with those implemented policies and financial and economic strategies or harmonisation processes. Greater appropriateness as well as modalities has been provided to the full coverage policy for certain account balances which have been temporarily increased. In March 16, 2011, it has been argued in the directive of 2009 that “the Commission shall submit to the European Parliament and to the Council a report on the effectiveness and delays of the payout procedures assessing whether reduction to 10 working days of the delay referred to in the first subparagraph could be implemented”. Several possible economic and financial models have been implemented for the purpose of introducing the notion of risk-based contributors within the financial system of the member states of the European Union. In regard to various due and ongoing debts and distortions prevailing in the financial market of the system different cross-border cooperation and policy coordination have been proposed to be implemented by the member states. In this context various small and local business organisations and enterprises have been given greater amounts of importance in this directive, in regard to financial and economic policies. The banking and financial system of the member states have been incorporated under the direct control of supervision of the European Union and of the European Council with the introduction of this directive. Along with this the control and power of each member states in terms of implementation of laws, rules and regulations for the sake of their own country, the Commission has been incorporated with those decisions (DIRECTIVES, 2009, pp.68/5-68/7). Importance of the directive: The most important feature of the directive has been the importance of these laws, rules and regulations in the process of making economic and financial system of the member states more effective. This effectiveness has been expected to get improved in the face of the difficult phase of intense financial crisis and economic slowdown which have been reducing the importance of the economy of the European Union in the world economic and financial system. Various compensation schemes have been implemented in the directive mainly for the purpose of increasing the financial base of the member states and also to reduce the intensity of this kind of financial crisis to affect the economic variables of the member states. The European Central Bank suggested these policies and strategies to the Commission, the European Union and to the European Council to make a coordinated policy implementation within the aggregate economic and financial system including all the member states to tackle any kind of financial and economic crisis in the future. The deposit-guarantee schemes have been used mainly for the purpose of for reforming the banking system of the member states of the European Union and also the securities market in these states. These reforms have been made after the occurrence of the financial crisis of 2007. The banking system of the European Union along with the insurance and insurance markets of the member states have been incorporated under the direct control of the Commission with the help of this directive. With the help of the directive various secondary laws have been implemented within the financial system of the European Union which has been providing greater supports to the member countries in events like ongoing financial crisis. In this context the most important effectiveness of the directive has been to provide the European Union, the Council and the Parliament greatest level of control and power over the choice and implementation of various instruments in favour of the financial and economic improvements of the member states (Mulbert and Schneider, 2011, pp.1-4). The most important requirements of the directive has been described by the fact that, with the help of the directive the level of reliance of people on the European Union, on the Council and on the Commission has been raised to a significant level. This increase in reliance has been expected to help the people as well as economic and financial agents to take efficient economic and financial policies. The directive has been effective in the process of harmonisation of laws and regulations within the certain specified field or in order to introduce different complex legislature changes in favour of the member countries (Mulbert and Schneider, 2011, pp.4-5). The main focus of the Directive 2009/14/EC has been on the coverage level, capabilities of credit institutions in payout and on the process of adequacy of funding for the future growth of the member states of the European Union. These policies and amendments have helped the Commission and the Council to raise the base of economic and financial strength for the member states (Report to the Financial Stability Board, 2010, p.7). Critical evaluation of funding policy: The most important need of the EU directive 2009/14/EC has been creation of a stable financial and banking system in the European Union (Bodiguel and Cardwell, 2009, p.340). This stability has been achieved to a great extent after the introduction of the direct control of the financial and policy-making abilities of the Council. Also greater debt guarantees and deposit guarantees have been important aims to achieve with the help of the directive. After the onset of the financial crisis in 2007, these policies have helped the European Union to a great extent to avoid the curse in terms of lowering income and increasing the volume of financial and banking debts (Green et al., 2011, p.221). Hence, the directive has been successful in terms of making the economic and financial structures of the member states of the European Union more stable (Exit from extraordinary financial sector support measures, 2009). Along with this, the crisis management and bank resolution along with the insolvency policies have been beneficial in terms of making the financial and banking system of these countries more stable (Ferran, n.d.). Conclusion: The EU directive 2009/14/EC has been described as one of the most important form of directive which has been implemented for the purpose of making the member states of the European Union or the Council more developed and strong in terms of financial and economic aspects. The directive has been featured as the process of increasing the level of confidence of depositors of the member states and also to ensure the level of stability in the financial market of these member states. Also the deposit-guarantee schemes which have been introduced in the directive have been helpful in raising the level of confidence among the national as well as international depositors in regard to making greater amounts of investments in the member states. The financial and economic crisis of the time has increased the need for a stricter and more controlled financial and economic policy-making body which has been established by the directive through the ability of the Central Bank of Europe to take control of the economic and financial policies of the member states. The directive has made a new increased level of cooperation between the member states in terms of making the financial decisions, such as banking and securities related decisions, and economic decisions stricter and more fruitful in terms of execution process. This increased collaboration has been expected t o reduce the intensity of financial crises to negatively affect the financial system of the Union in future. The reform in the payout system have been introduced in the directive for the purpose of increasing the base of monetary supports of the banks of the member states in a way such that in case of occurrence of severe financial crisis situation these banks will be able to secure all monetary needs of these economies. Although a large number of financial and economic policies along with laws and regulations have been introduced in the European Union by this directive, effectiveness of these rules and policies can only be realised in the longer run. This is because the member states are still suffering from the curse of financial crisis or economic slowdown. References: 1. Bodiguel, L. and Cardwell, M. 2009, The regulation of genetically modified organisms: comparative approaches, UK: Oxford University Press 2. Daelen, M. V. and Elst, C. V. D. 2010, Risk management and corporate governance: interconnections in law, accounting and tax, UK: Edward Elgar Publishing 3. DIRECTIVES, 2009, DIRECTIVE 2009/14/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 11 March 2009, Official Journal of the European Union, Available from: http://ec.europa.eu/internal_market/bank/docs/guarantee/200914_en.pdf [Accessed on March 20, 2012] 4. Exit from extraordinary financial sector support measures, 2009, Note for G20 Ministers and Governors meeting 6-7 November 2009, Financial Stability Board, Available from: http://www.fsa.go.jp/inter/fsf/20091112/03.pdf [Accessed on March 20, 2012] 5. Ferran, E. n.d., Financial Crisis as a Driver of Law Reform: Where Is It Taking The EU?, Available from: http://denning.law.ox.ac.uk/news/events_files/FINANCIAL_CRISIS_AS_A_DRIVER_OF_LAW_REFORM.pdf [Accessed on March 20, 2012] 6. Green, C. J. et al. 2011, The Financial Crisis and the Regulation of Finance, UK: Edward Elgar Publishing 7. Jennen, B. and Vijver, N. V. D. 2010, Banking and Securities Regulation in the Netherlands, UK: Kluwer Law International 8. Jovanovic, M. N. 2011, International Handbook on the Economics of Integration: Competition, Spatial Location of Economic Activity and Financial Issues, UK: Edward Elgar Publishing 9. Mulbert, P. O. and Schneider, U. H. 2011, Reform of EU banking and Securities Regulation after the Financial Crisis, Available at: http://www.s-wissenschaft.de/dokumente/WorkingPap_110714123620.PDF [Accessed on March 20, 2012] 10. Report to the Financial Stability Board, 2010, Note by the Staffs of the International Association of Deposit Insurers and the International Monetary Fund, IMF, Available from: http://www.financialstabilityboard.org/publications/r_1006.pdf [Accessed on March 20, 2012] 11. Warren, E. n.d., Global Context and International Effects of the TARP, UK: DIANE Publishing Read More