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Clifford Chance

Clifford Chance


Bank depositor preference regimes — Policy advantages and disadvantages

14 April 2023

The policy debate is again turning to how best to protect depositors with failed banks by ranking their deposits above other senior unsecured creditors in the creditor hierarchy in insolvency. While many jurisdictions already have depositor preference regimes, some do not and others, in particular the EU, are reconsidering their design and scope.

This briefing reviews:

  • the types of depositor preference regime that may be operated by banks' home countries;
  • the application of depositor preference regimes by host countries in relation to local branches of foreign banks and by home countries in relation to foreign branches of domestic banks;
  • the policy advantages and disadvantages of depositor preference regimes; and
  • the interplay of the interests of home countries and host countries in, and the impact of industry structure on, the design and application of depositor preference regimes.

The design and application of depositor preference regimes is particularly important in relation to the failure of smaller or medium-sized banks with significant levels of deposit funding, especially where a large part of the deposit base is not covered by deposit insurance.

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