28th March, 2013

A problem with deposits can only occur if a bank is being liquidated or wound up (i.e. if its situation is systemic and it requires organised assistance). This is not the case in Portugal.

- The safety of deposits
A problem with deposits can only occur if a bank is being liquidated or wound up (i.e. if its situation is systemic and it requires organised assistance). This is not the case in Portugal. Even in the event of an institution's insolvency, customers' deposits up to 100,000 euros are guaranteed in Europe by deposit guarantee funds, and the one in Portugal is properly funded.

The Portuguese banks are in good health and well capitalised. Their solvency ratios have never been higher and they are comfortable in terms of liquidity. Their customers' deposits are therefore perfectly safe.

The crisis and risk of insolvency at the banks in Cyprus meant that measures had to be taken to restore their viability. These measures took account of the specificities of the Cypriot banking system. It cannot be extrapolated to other countries with stable financial systems. And we must not forget that in the event of liquidation of a bank that has no solution, depositors would lose any deposits not covered by the Cypriot guarantee fund.

The Eurogroup is preparing a crisis management directive for banks, entailing bailing them out or winding them up. The mechanisms for winding up banks will be used for institutions in crisis, bank by bank, and as a last resort, as these measures apply to a context in which the likelihood of liquidation is being minimised. The legal framework to minimise these risks is already in effect in Portugal.

The so-called bail-in instruments (conversion into capital of a bank's liabilities) have not yet been fully determined, but they assume that the shareholders, the holders of convertible capital and their subordinated liabilities, will be called upon to participate in the banks' recapitalisation in order to make them viable. This reduces state intervention or recourse to the European Union's financial stability mechanisms and therefore the taxpayers' money (bail-out).

The APB has upheld the idea, especially in Brussels, that all deposits - and not just those covered by deposit guarantee funds - should be excluded from bail-in instruments in order to avoid potential systemic risks. If this option is not accepted, the APB believes that deposits not covered (over 100,000 euros) should have a creditor's preferential claim.

- Tax on deposits
The introduction of a tax on deposits, which was considered in Cyprus for a time, would be a tax on a part of assets, thereby directly affecting the source of income. This would be a very unusual solution and raises strong objections in terms of economic and tax policy. These objections are even greater when it is bank deposits that are being taxed, not only because it would discourage saving, but also because these assets normally come straight from income from work, investments, etc, which have already been taxed. Furthermore, this extraordinary tax on only one kind of asset, deposits, excluding others like property, shares, bonds or cash kept "under the mattress" or in a bank safety deposit box, does not respect the fundamental principle of universality of taxation under the rule of law.

A tax on deposits in Portugal would not in fact make sense. Portugal needs to encourage saving, which is essential to economic growth. It is unthinkable, absurd to penalise deposits when we are supposed to be stimulating them. And it would not even be legal, for the reasons mentioned above.

Savers can rest assured. It would be unimaginable to levy a tax on deposits.