## This note focuses on the deposit insurance scheme

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---

### The Deposit Insurance Agency (DIA)
- The DIA was established as the legal successor to the Agency of the Federation for Deposit Insurance and Bank Rehabilitation (dating from 1989).
- Mandate and functions:
  - In charge of the deposit insurance fund (DIF) management and payout functions.
  - Designated bank resolution agency for closed bank resolution.
  - Tasked by GoS to manage state- and socially-owned bank shares on behalf of the state.
  - Tasked to collect GoS debt in the context of the Paris-London club negotiations.
- Organization and staffing:
  - The DIA employs 36 staff, of which 27 are permanent.
  - Only five staff are involved in DIF management.
  - The DIA employs temporary staff under Swiss grant funding to advise on management of state-owned banks and temporary staff in a (donor) project implementation unit for DIA and for other agencies.
  - The DIA does not have an IT department and has outsourced its functions to the IT department of Beogradska bank that is under bankruptcy administration with DIA.
- Revenues and budgeting:
  - DIA revenue sources include: (i) DIF premium and interest; (ii) fees obtained from collection of GoS debt to private companies in the context of the Paris-London club negotiations (3% of the debt collected); and, (iii) fees from bank resolution upon completion of the process (fees amount to cost incurred by DIA).
  - The DIA budget is annually approved by its Supervisory Board.
  - In 2007, the bulk of the DIA revenue was generated by donors’ grants.
  - In 2008 most revenue came from interest on DIF resources (70 percent of the DIA revenues)—DIF operating expenses amounted only to 32 percent of the DIA expenses.
- Legal ambiguity and recommended legal changes:
  - Article 12 of the DIA Law identifies two sources of funds for the Agency: (i) the DIF, according to the purposes specified in the DIF law (Art 13); and, (ii) others.
  - The Law on the DIF (Art 7) specifies that DIF resources cannot be used for purposes other than those related to deposit insurance.
  - Recommendation: Amend the DIF Law to clarify that DIF resources can be used for DIF operating expenses, but with a cap.
  - Best practice cited: use not more than 50 percent of interest earned on invested DIF’s resources to cover operating expenses, with the remaining revenues dedicated to building the deposit insurance fund.
  - Recommendation: Publish DIA statements annually on its website.
- Institutional strategy and governance recommendations:
  - The authorities should develop a medium term strategy for the DIA, including a funding strategy for non-DIF related activities.
  - Concerns: multiplicity of functions could obscure institutional focus, dilute staff technical skills, generate conflicts of interest; key functions like IT outsourced with no clear legal ownership of data and the system.
  - Recommendation: Prepare a medium-term strategy and institutional development plan for the DIA with a funding plan for non-DIF activities at its core.

### Bank resolution framework (summary)
- Present framework foresees only closed bank resolution options (liquidation or bankruptcy) upon license withdrawal by the National Bank of Serbia.
- Bankruptcy: court estimates bank assets are smaller than bank liabilities.
- Liquidation: court estimates there are enough assets to repay all creditors.
- In both cases the DIA administers the process.
- Government is amending the bank resolution framework to expand the resolution toolkit to include open and closed bank purchase and assumptions and bridge banks.
- Responsibility: restructuring open banks rests with the National Bank of Serbia; resolution of closed banks will remain with the DIA.

### The Deposit Insurance Fund (DIF) — compliance and coverage
- Compliance with BIS/IADI Core Principles:
  - The DIF fully or partially complies with 11 out of 18 Core Principles for Effective Deposit Insurance Systems.
  - The DIF fully complies with five principles, is partially compliant with 5, is non-compliant with 6, and compliance could not be determined for one principle.
- Coverage level and payout timing:
  - Following recent amendments, the DIF covers households and SMEs accounts up to EUR 50,000 per depositor per bank.
  - Payouts should be started within three days of bank closure (reduced from 30 days).
  - 2005 coverage was EUR 3,000 per household per bank; expanded to EUR 50,000 in December 2008 and extended coverage to sole entrepreneurs and SMEs.
- Exclusions and recommended changes:
  - Depositors of banks in liquidation and bank employees remain outside DIF coverage; they have a claim on the liquidated banks for the full amount of their deposit.
  - Liquidator should start payment of deposits within three days; if the liquidated bank lacks liquid assets, the liquidator (i.e., DIF) is required by law to extend a loan to the liquidated bank for the total amount of the insured deposits.
  - If DIF extends a loan to the liquidated bank, its claim takes precedence in the order of priority.
  - Individuals or entities connected to the bank are excluded; bank employees are considered connected and therefore excluded.
  - Recommendation: Amend legal framework to equate treatment of depositors of banks in liquidation to those of banks in bankruptcy; revise definition of connected parties so regular employees are not excluded.
- Coverage breadth and moral hazard concerns:
  - As a result of the December 2008 change, 99 percent of deposits of the whole banking system by number and 90 percent by volume are covered by the DIF.
  - Recommendation: Gradually decrease or narrow the scope of coverage, starting with the most sophisticated depositors, when risks of deposit flight have abated, to mitigate moral hazard.
  - Note: EUR 50,000 coverage is required for EU members and is warranted for EU members on the basis of higher GDP per capita.

### Fund adequacy, funding arrangements, and operational capacity
- DIF size and coverage metrics:
  - Fund size at 2008 YE: EUR 75 million.
  - With this fund size, the DIF can cover 9 of the smallest banks collectively or any of the 20 smallest banks individually.
  - The fund has a coverage ratio of 1.8 percent (measured as the size of the fund to the amounts of eligible deposits).
  - Table of coverage ratios for new EU member states (2005) is presented in the source (values preserved in the primary document).
- Risk assessment and actuarial capacity recommendation:
  - The DIF needs to develop risk assessment capacity and employ actuarial tools to assess if reserves are commensurate with risks.
  - Best practice: determine fund size using a combination of exposure size; effectiveness of supervision and intervention; macro-economic situation; corporate governance standards; level of risk taken by banks; number and diversity of insured banks; size of largest bank; priority of depositors in liquidation; level of capital in banks; emergency funding arrangements; speed with which DIF investments can be liquidated and risk level of such investments.
- Emergency funding arrangements:
  - As of end-September 2009, the DIF did not have sufficient resources to cover insured depositors of any of the largest 16 banks individually or more than the sum of the 9 smallest banks.
  - DIF law lists additional funding sources when DIF resources are insufficient: an extraordinary premium up to 0.4 percent annually and borrowings; the DIF law also mentions the DIF is fully backed by GoS.
  - No emergency funding arrangements have been set up and no line-item included in GoS budget to operationalize GoS support.
  - Recommendations for contingency funding: (i) include in the Law on Banking Sector Stability the possibility of obtaining an emergency line of credit from GoS under urgent procedures; or, (ii) negotiate a standby line with the EBRD or private banks.
  - Box 3 in the source documents various international models for emergency funding (public sources, private sources, international institutions) and notes best practice is for explicit, fast-availability arrangements that typically do not rely on increased premia in crisis.
- Payout strategy and IT capabilities:
  - DIA lacks a payout strategy and an adequate IT system.
  - Past payout processes were ad hoc, with a mix of manual and automated procedures; different software was used at different times (Access, then Oracle, then Access).
  - Oracle database and software was never implemented partially due to understaffing at the DIA IT department.
  - Legal amendments shortening the payout period emphasize the need to develop and approve a payout strategy and adequate IT system.

### Payout procedure — assessment and recommendation
- The payout procedure is in final drafting phase and "is adequate".
- The procedure consists of:
  - internal policies on the whole payout processes (staffing arrangements and responsibilities, flow of documents, detailed instructions for transferring data from bankrupted bank, control functions, process of the calculations, control of insured amounts and similar)
  - templates for the related documents
- Recommendation:
  - Test the payout procedure upon completion and prior to approval because the process "is technically and technologically complex".
- Priority from recommendations table:
  - "Test and approve payout strategy" — Immediate

### IT software, hardware, and staffing
- Current development:
  - IT experts of Beogradska bank are designing software covering the three phases of deposit payout:
    - transfer of data from bankrupted bank to the DIF
    - reimbursement process via payout agents
    - recording reimbursements in the DIF
- Current hardware ownership:
  - Part of the IT equipment belongs to the DIA, but most of it to Beogradska bank.
- Risks and policy advice:
  - It is not advisable that equipment is placed outside the DIA premises because of "potential risk of misuse, loss, lack of controls etc."
  - Strong advice: DIA should purchase all the equipment and software rights and recruit IT staff.
- Priority from recommendations table:
  - "Finalize and purchase IT software and equipment and recruit own staff" — Short-term

### Legal protection for DIF staff
- Current legal gap:
  - The current DIA and DIF laws do not provide for protection of the deposit insurer, and individuals working for the deposit insurer, against lawsuits for decisions and actions taken in "good faith" while discharging their mandates.
- Risk note:
  - Although this has not yet occurred in Serbia, in other countries depositors have sued individuals working in deposit insurance schemes (for example, due to delays in payout).
- Recommendation:
  - Amend the Law on the DIA and DIF to provide such legal protection.
- Priority from recommendations table:
  - "Amend DIF and DIA Law to provide for legal protection of staff for decisions taken in good faith" — Short-term

### Public information and awareness
- Current status:
  - The DIF does not conduct public awareness campaigns on an ongoing basis and has not identified a target audience.
- Importance:
  - "Information is crucial especially in a time of crisis".
- Recommendation:
  - Design and implement a structured information campaign as soon as possible.
- Priority from recommendations table:
  - "Develop an on-going public information campaign" — Short-term

### Consolidated recommendations (selected)
- DIA
  - "Amend legal framework to clarify allowed use of DIF resources and cap use for operating expenses" — Short-term
  - "Develop medium term strategy for the Agency including funding for non DIF related activities" — Short-term
- DIF COVERAGE
  - "Amend the DIF Law to include depositors of liquidated banks under DIF coverage and change definition of 'persons related to the bank' to exclude bank employees" — Immediate
  - "Reduce coverage to more credible levels" — Short-term
- DIF SIZE
  - "Develop risk assessment capacity" — Medium term
  - "Set-up emergency funding arrangements" — Immediate
- DIF PAYOUT PROCEDURES
  - "Test and approve payout strategy" — Immediate
  - "Finalize and purchase IT software and equipment and recruit own staff" — Short- term
- LEGAL PROTECTION FOR DIF STAFF
  - "Amend DIF and DIA Law to provide for legal protection of staff for decisions taken in good faith" — Short-term
- PUBLIC INFORMATION OF THE DIF
  - "Develop an on-going public information campaign" — Short-term

### Selected findings from the Annex — Compliance with Core Principles (key statistics and legal points)
- Coverage and moral hazard:
  - Coverage level: "EUR 50.000 per deposit per bank for households and SMEs."
  - Exclusions: depositors of banks in liquidation and depositors who are connected to the bank are not covered; four groups of exclusions (connected persons, anonymous deposits, deposits arising from money-laundry activities, deposits of bank’s auditors).
  - Currently, "99 percent of the deposits in number and 90 percent in volume are covered"; characterized as "almost akin to a blanket guarantee".
  - Assessment: "The DIF is not in compliance with the 2nd Core principle."
- Mandate and powers:
  - DIF described as a "pay-box" with no regulatory or resolution responsibilities and is housed in the Deposit Insurance Agency (DIA) which has additional mandates.
  - Funding sources identified in law (Art. 9–15): initial contribution, regular quarterly premium, extraordinary premia, borrowing.
  - Republic of Serbia guarantees DIA’s obligations toward depositors (Art. 4).
  - Assessment highlights: lack of emergency funding arrangements; DIF "does not have all the powers necessary" and lacks capability to verify deposit data.
- Timeliness of reimbursement:
  - Legal obligation: DIF is required to start payout in "3 days".
  - Practical constraint: "with no payout procedures, nor a fully fledged IT system, the DIF is unlikely to be able to initiate large scale payouts in such timeframe."
  - Assessment: DIF is in compliance with the 17th Core Principle (prompt access) legally, but not fully compliant with the 16th Core Principle (effective resolution processes) in practice.
- Public awareness and legal protection:
  - Public awareness: DIF has a web page and some leaflets but "no on-going public information campaign with a target group and a dedicated budget"; a recent survey on public awareness was completed but not yet used.
  - Legal protection: Neither the legal framework nor the DIF Statute provides legal protection to individuals; DIF is "not in compliance with the 13th Core Principle."
- Recoveries and priority:
  - Under the Law on banking bankruptcy and liquidation, "the DIF is in the 1st line for recovery of its funds."
  - Amendments: if the DIF extends a loan to the liquidated bank to reimburse depositors, its claim "takes precedence in the order of priority."
  - Assessment: DIF is in compliance with the 18th Core Principle.

*Source: Technical note on the deposit insurance scheme (excerpts).*

### 1.      This note focuses on the deposit insurance scheme. An analysis of the deposit insurance

### This note focuses on the deposit insurance scheme

### The Deposit Insurance Agency (DIA)
- The DIA was established as the legal successor to the Agency of the Federation for Deposit Insurance and Bank Rehabilitation (dating from 1989).
- Mandate and functions:
  - In charge of the deposit insurance fund (DIF) management and payout functions.
  - Designated bank resolution agency for closed bank resolution.
  - Tasked by GoS to manage state- and socially-owned bank shares on behalf of the state.
  - Tasked to collect GoS debt in the context of the Paris-London club negotiations.
- Organization and staffing:
  - The DIA employs 36 staff, of which 27 are permanent.
  - Only five staff are involved in DIF management.
  - The DIA employs temporary staff under Swiss grant funding to advise on management of state-owned banks and temporary staff in a (donor) project implementation unit for DIA and for other agencies.
  - The DIA does not have an IT department and has outsourced its functions to the IT department of Beogradska bank that is under bankruptcy administration with DIA.
- Revenues and budgeting:
  - DIA revenue sources include: (i) DIF premium and interest; (ii) fees obtained from collection of GoS debt to private companies in the context of the Paris-London club negotiations (3% of the debt collected); and, (iii) fees from bank resolution upon completion of the process (fees amount to cost incurred by DIA).
  - The DIA budget is annually approved by its Supervisory Board.
  - In 2007, the bulk of the DIA revenue was generated by donors’ grants.
  - In 2008 most revenue came from interest on DIF resources (70 percent of the DIA revenues)—DIF operating expenses amounted only to 32 percent of the DIA expenses.
- Legal ambiguity and recommended legal changes:
  - Article 12 of the DIA Law identifies two sources of funds for the Agency: (i) the DIF, according to the purposes specified in the DIF law (Art 13); and, (ii) others.
  - The Law on the DIF (Art 7) specifies that DIF resources cannot be used for purposes other than those related to deposit insurance.
  - Recommendation: Amend the DIF Law to clarify that DIF resources can be used for DIF operating expenses, but with a cap.
  - Best practice cited: use not more than 50 percent of interest earned on invested DIF’s resources to cover operating expenses, with the remaining revenues dedicated to building the deposit insurance fund.
  - Recommendation: Publish DIA statements annually on its website.
- Institutional strategy and governance recommendations:
  - The authorities should develop a medium term strategy for the DIA, including a funding strategy for non-DIF related activities.
  - Concerns: multiplicity of functions could obscure institutional focus, dilute staff technical skills, generate conflicts of interest; key functions like IT outsourced with no clear legal ownership of data and the system.
  - Recommendation: Prepare a medium-term strategy and institutional development plan for the DIA with a funding plan for non-DIF activities at its core.

### Bank resolution framework (summary)
- Present framework foresees only closed bank resolution options (liquidation or bankruptcy) upon license withdrawal by the National Bank of Serbia.
- Bankruptcy: court estimates bank assets are smaller than bank liabilities.
- Liquidation: court estimates there are enough assets to repay all creditors.
- In both cases the DIA administers the process.
- Government is amending the bank resolution framework to expand the resolution toolkit to include open and closed bank purchase and assumptions and bridge banks.
- Responsibility: restructuring open banks rests with the National Bank of Serbia; resolution of closed banks will remain with the DIA.

### The Deposit Insurance Fund (DIF) — compliance and coverage
- Compliance with BIS/IADI Core Principles:
  - The DIF fully or partially complies with 11 out of 18 Core Principles for Effective Deposit Insurance Systems.
  - The DIF fully complies with five principles, is partially compliant with 5, is non-compliant with 6, and compliance could not be determined for one principle.
- Coverage level and payout timing:
  - Following recent amendments, the DIF covers households and SMEs accounts up to EUR 50,000 per depositor per bank.
  - Payouts should be started within three days of bank closure (reduced from 30 days).
  - 2005 coverage was EUR 3,000 per household per bank; expanded to EUR 50,000 in December 2008 and extended coverage to sole entrepreneurs and SMEs.
- Exclusions and recommended changes:
  - Depositors of banks in liquidation and bank employees remain outside DIF coverage; they have a claim on the liquidated banks for the full amount of their deposit.
  - Liquidator should start payment of deposits within three days; if the liquidated bank lacks liquid assets, the liquidator (i.e., DIF) is required by law to extend a loan to the liquidated bank for the total amount of the insured deposits.
  - If DIF extends a loan to the liquidated bank, its claim takes precedence in the order of priority.
  - Individuals or entities connected to the bank are excluded; bank employees are considered connected and therefore excluded.
  - Recommendation: Amend legal framework to equate treatment of depositors of banks in liquidation to those of banks in bankruptcy; revise definition of connected parties so regular employees are not excluded.
- Coverage breadth and moral hazard concerns:
  - As a result of the December 2008 change, 99 percent of deposits of the whole banking system by number and 90 percent by volume are covered by the DIF.
  - Recommendation: Gradually decrease or narrow the scope of coverage, starting with the most sophisticated depositors, when risks of deposit flight have abated, to mitigate moral hazard.
  - Note: EUR 50,000 coverage is required for EU members and is warranted for EU members on the basis of higher GDP per capita.

### Fund adequacy, funding arrangements, and operational capacity
- DIF size and coverage metrics:
  - Fund size at 2008 YE: EUR 75 million.
  - With this fund size, the DIF can cover 9 of the smallest banks collectively or any of the 20 smallest banks individually.
  - The fund has a coverage ratio of 1.8 percent (measured as the size of the fund to the amounts of eligible deposits).
  - Table of coverage ratios for new EU member states (2005) is presented in the source (values preserved in the primary document).
- Risk assessment and actuarial capacity recommendation:
  - The DIF needs to develop risk assessment capacity and employ actuarial tools to assess if reserves are commensurate with risks.
  - Best practice: determine fund size using a combination of exposure size; effectiveness of supervision and intervention; macro-economic situation; corporate governance standards; level of risk taken by banks; number and diversity of insured banks; size of largest bank; priority of depositors in liquidation; level of capital in banks; emergency funding arrangements; speed with which DIF investments can be liquidated and risk level of such investments.
- Emergency funding arrangements:
  - As of end-September 2009, the DIF did not have sufficient resources to cover insured depositors of any of the largest 16 banks individually or more than the sum of the 9 smallest banks.
  - DIF law lists additional funding sources when DIF resources are insufficient: an extraordinary premium up to 0.4 percent annually and borrowings; the DIF law also mentions the DIF is fully backed by GoS.
  - No emergency funding arrangements have been set up and no line-item included in GoS budget to operationalize GoS support.
  - Recommendations for contingency funding: (i) include in the Law on Banking Sector Stability the possibility of obtaining an emergency line of credit from GoS under urgent procedures; or, (ii) negotiate a standby line with the EBRD or private banks.
  - Box 3 in the source documents various international models for emergency funding (public sources, private sources, international institutions) and notes best practice is for explicit, fast-availability arrangements that typically do not rely on increased premia in crisis.
- Payout strategy and IT capabilities:
  - DIA lacks a payout strategy and an adequate IT system.
  - Past payout processes were ad hoc, with a mix of manual and automated procedures; different software was used at different times (Access, then Oracle, then Access).
  - Oracle database and software was never implemented partially due to understaffing at the DIA IT department.
  - Legal amendments shortening the payout period emphasize the need to develop and approve a payout strategy and adequate IT system.

### Key policy recommendations (summarized)
- Amend DIF and DIA laws to unambiguously clarify permitted use of DIF resources and cap use for operating costs (best practice: not more than 50 percent of interest on invested DIF resources for operating expenses).
- Publish DIA statements annually on its website.
- Develop a medium-term strategy and institutional development plan for the DIA, with a funding strategy for non-DIF related activities and clear legal ownership for outsourced IT systems and data.
- Amend legal framework to bring depositors of banks in liquidation and bank employees under DIF coverage (or revise the definition of connected parties to exclude regular employees).
- Gradually reduce or narrow DIF coverage from EUR 50,000 when deposit flight risks abate, starting with the most sophisticated depositors to reduce moral hazard.
- Develop DIF risk assessment capacity and actuarial tools to target an appropriate fund size using multi-factor criteria.
- Establish explicit emergency funding arrangements (e.g., statutory contingency credit line from GoS, standby line with EBRD or private banks) and include necessary budget line-items to operationalize GoS backing.
- Develop and approve a formal payout strategy and implement an adequate, staffed IT system to meet the three-day payout requirement.

*Source: Technical note on the deposit insurance scheme (excerpts).*/

### 18.      The recent draft payout procedure is adequate and should be tested and adopted as

### 18.      The recent draft payout procedure is adequate and should be tested and adopted as

### Payout procedure — assessment and recommendation
- The payout procedure is in final drafting phase and "is adequate".
- The procedure consists of:
  - internal policies on the whole payout processes (staffing arrangements and responsibilities, flow of documents, detailed instructions for transferring data from bankrupted bank, control functions, process of the calculations, control of insured amounts and similar)
  - templates for the related documents
- Recommendation:
  - Test the payout procedure upon completion and prior to approval because the process "is technically and technologically complex".
- Priority from recommendations table:
  - "Test and approve payout strategy" — Immediate

### IT software, hardware, and staffing
- Current development:
  - IT experts of Beogradska bank are designing software covering the three phases of deposit payout:
    - transfer of data from bankrupted bank to the DIF
    - reimbursement process via payout agents
    - recording reimbursements in the DIF
- Current hardware ownership:
  - Part of the IT equipment belongs to the DIA, but most of it to Beogradska bank.
- Risks and policy advice:
  - It is not advisable that equipment is placed outside the DIA premises because of "potential risk of misuse, loss, lack of controls etc."
  - Strong advice: DIA should purchase all the equipment and software rights and recruit IT staff.
- Priority from recommendations table:
  - "Finalize and purchase IT software and equipment and recruit own staff" — Short-term

### Legal protection for DIF staff
- Current legal gap:
  - The current DIA and DIF laws do not provide for protection of the deposit insurer, and individuals working for the deposit insurer, against lawsuits for decisions and actions taken in "good faith" while discharging their mandates.
- Risk note:
  - Although this has not yet occurred in Serbia, in other countries depositors have sued individuals working in deposit insurance schemes (for example, due to delays in payout).
- Recommendation:
  - Amend the Law on the DIA and DIF to provide such legal protection.
- Priority from recommendations table:
  - "Amend DIF and DIA Law to provide for legal protection of staff for decisions taken in good faith" — Short-term

### Public information and awareness
- Current status:
  - The DIF does not conduct public awareness campaigns on an ongoing basis and has not identified a target audience.
- Importance:
  - "Information is crucial especially in a time of crisis".
- Recommendation:
  - Design and implement a structured information campaign as soon as possible.
- Priority from recommendations table:
  - "Develop an on-going public information campaign" — Short-term

### Consolidated recommendations (as summarized in the source)
- DIA
  - "Amend legal framework to clarify allowed use of DIF resources and cap use for operating expenses" — Short-term
  - "Develop medium term strategy for the Agency including funding for non DIF related activities" — Short-term
- DIF COVERAGE
  - "Amend the DIF Law to include depositors of liquidated banks under DIF coverage and change definition of 'persons related to the bank' to exclude bank employees" — Immediate
  - "Reduce coverage to more credible levels" — Short-term
- DIF SIZE
  - "Develop risk assessment capacity" — Medium term
  - "Set-up emergency funding arrangements" — Immediate
- DIF PAYOUT PROCEDURES
  - "Test and approve payout strategy" — Immediate
  - "Finalize and purchase IT software and equipment and recruit own staff" — Short- term
- LEGAL PROTECTION FOR DIF STAFF
  - "Amend DIF and DIA Law to provide for legal protection of staff for decisions taken in good faith" — Short-term
- PUBLIC INFORMATION OF THE DIF
  - "Develop an on-going public information campaign" — Short-term

### Selected findings from the Annex — Compliance with Core Principles (key statistics and legal points)
- Coverage and moral hazard:
  - Coverage level: "EUR 50.000 per deposit per bank for households and SMEs."
  - Exclusions: depositors of banks in liquidation and depositors who are connected to the bank are not covered; four groups of exclusions (connected persons, anonymous deposits, deposits arising from money-laundry activities, deposits of bank’s auditors).
  - Currently, "99 percent of the deposits in number and 90 percent in volume are covered"; characterized as "almost akin to a blanket guarantee".
  - Assessment: "The DIF is not in compliance with the 2nd Core principle."
- Mandate and powers:
  - DIF described as a "pay-box" with no regulatory or resolution responsibilities and is housed in the Deposit Insurance Agency (DIA) which has additional mandates.
  - Funding sources identified in law (Art. 9–15): initial contribution, regular quarterly premium, extraordinary premia, borrowing.
  - Republic of Serbia guarantees DIA’s obligations toward depositors (Art. 4).
  - Assessment highlights: lack of emergency funding arrangements; DIF "does not have all the powers necessary" and lacks capability to verify deposit data.
- Timeliness of reimbursement:
  - Legal obligation: DIF is required to start payout in "3 days".
  - Practical constraint: "with no payout procedures, nor a fully fledged IT system, the DIF is unlikely to be able to initiate large scale payouts in such timeframe."
  - Assessment: DIF is in compliance with the 17th Core Principle (prompt access) legally, but not fully compliant with the 16th Core Principle (effective resolution processes) in practice.
- Public awareness and legal protection:
  - Public awareness: DIF has a web page and some leaflets but "no on-going public information campaign with a target group and a dedicated budget"; a recent survey on public awareness was completed but not yet used.
  - Legal protection: Neither the legal framework nor the DIF Statute provides legal protection to individuals; DIF is "not in compliance with the 13th Core Principle."
- Recoveries and priority:
  - Under the Law on banking bankruptcy and liquidation, "the DIF is in the 1st line for recovery of its funds."
  - Amendments: if the DIF extends a loan to the liquidated bank to reimburse depositors, its claim "takes precedence in the order of priority."
  - Assessment: DIF is in compliance with the 18th Core Principle.

*Source: IMF technical note (excerpts as provided in the content unit).*

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