Life insurance, current account: can your money be frozen in the event of a “bank run”?

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On your Livret A, your life insurance and even your current account, your withdrawals can be blocked in the event of a crisis. A scenario to fear in the coming months given the political situation in France?

Dark scenario on the horizon? On Sunday, June 9, in the wake of the results of the European elections, the President of the Republic, Emmanuel Macron, announced the dissolution of the National Assembly. This decision opens a period of political instability, which could lead within a few weeks to the impossibility of obtaining a majority and therefore to form a government, or to an unprecedented situation in which the Rassemblement comes to power. , big winner of the European elections.

Two potentially incendiary outcomes for France’s ability to finance itself on the financial markets. And even more if we add the current state of the public deficit – 5.5% of GDP, almost double the limit set by the European Treaties – and the recent downgrade of France’s debt rating by the Standard and Poor’s rating agency. But in the event that France no longer manages to find buyers for its debt, savers may fear a collapse of the financial system and the bankruptcy of their banks. A fear that could create a banking panic (“bank run”) : a rush of Frenchmen to the counters to get their savings back.

Withdrawals from current accounts and life insurance accounts may well be blocked

But if the panic sets in and causes massive withdrawals, what would happen? In France, the Prudential Control and Resolution Authority (ACPR) is responsible for supervising the banking sector and “preserve the stability of the financial system”, reminiscent of the Banque de France website. For this purpose, the supervisory authority has the power to impose restrictive measures on banks, such as “restrict or temporarily prohibit the exercise of certain operations”, such as withdrawals from current accountsstates Article L612-33 of the Monetary and Financial Law.

A scenario never seen in France, but not in Europe: in the wake of the sovereign debt crisis, caps on daily withdrawals were introduced in Cyprus in 2013 and in Greece in 2015. “These measures remain extremely rare and always limited in timespecifies Philippe Crevel, economist and president of Sparekredsen. Furthermore, it is not a matter of confiscating the savings of individuals, but simply a safety measure to avoid the bankruptcy of the banks in question, if all their customers were to withdraw their savings at once.”

In France, this blocking of withdrawals can also be decided for life insurance policies, and has been since 2016, with the adoption of the Sapin 2 law of 9. December 2016. This law provides that in case of systemic risk, the High Financial Stability Council (HCSF) – another institution dependent on the Banque de France and the ACPR – can take preventive measures, including freezing of life insurance contracts for a period of three months which may be extended.

In the event of bankruptcy, guarantee funds protect your capital up to a certain amount

From a legal point of view, it is therefore possible to freeze withdrawals on folio and life insurance accounts, which contain the vast majority of French people’s savings. But it is with the aim of avoiding the bankruptcy of the companies in question. However, it must be remembered that even if the bankruptcy occurs, savers would be covered up to a certain amount. For their current accounts, regulated savings accounts (Livret A, LEP, LDDS) and bank accounts, the Deposit Guarantee and Settlement Fund (FGDR) can reimburse savers up to 100,000 euros, for each account opened in a company. For life insurance, it is the personal insurance guarantee fund (FGAP) that covers subscribers up to 70,000 euros.