THE CENTRAL BANK has issued an invitation to tender worth an estimated €4.5 million for a “business partner” to provide support if a bank goes bust.

It is primarily to cover support for the Irish Deposit Guarantee Scheme (DGS), which means that customers who had deposited money with a bank or other financial institution will get a maximum of €100,000 returned if the bank goes under.

However, the chosen partner will primarily be doing “business as usual” work for the Central Bank which includes running bi-annual stress tests or simulation events to prove the readiness of the banks to meet their obligations under DGS.

The successful tenderer will also need to provide ongoing testing of data provided by the banks to give their feedback on the banks’ compliance with their DGS obligations.

The contract, for an initial five years, comes with the option of a further extension of one or two years.

Deposit Guarantee Scheme

The measures covered by this scheme were part of the bank guarantee issued by then-Minister for Finance Brian Lenihan in September 2008. The €100,000 guarantee per person was give times higher than the previous amount.

Lenihan told RTÉ: “The government is confident about the security of all deposits in Irish banks, and we are determined to maintain stability in the Irish banking system. As part of that, we have decided as a government it is important to reassure consumers that their deposits are absolutely legally guaranteed by the State to the sum of €100,000.”

The crises that followed plunged the Irish economy into turmoil in subsequent months and years but, over a decade on, that €100,000 guarantee on deposits remains in place.

The Central Bank is responsible for administering that scheme which compensates depositors in the event that a financial institution fails. 

In its tender specification, it said: “In the event of a liquidator being appointed to a credit institution, the Central Bank is obliged to pay compensation up to €100,000 per person per institution to depositors who are deemed eligible under the rules of the scheme within specified deadlines.”

The current legislation says that depositors must be given their money within 15 days, but the Central Bank said to maintain “confidence and alleviate hardship”, the aim is to pay depositors within seven working days.

In the event that a bank did fail, the successful tenderer would then be notified and be required to immediately increase its operational capability in line with the size of the failed institution and its deposit base to provide the support needed.

The business partner will then handle the administration of payouts to that institution’s customers – collating the data provided on the customers, dividing them into those who can be paid out straight away and the more “complex cases”.

All payments must then be properly accounted for and reported to the Central Bank for its records.

Business as usual

For the duration of the contract with the Central Bank, its partner will have to complete “full end-to-end stress tests/simulation tests” twice a year.

These will be needed to test all aspects of operational procedures and identify any issues which would affect customers being paid out if the financial institution was to go bust.

The results of these tests will be given to the European Banking Authority.

The successful tenderer will also need to check the data provided by banks, and provide feedback on their compliance with the DGS.

The deadline for submissions to the Central Bank is midday on Friday 10 May.