Case C-822/21, Latvia v. Sweden (deposit guarantee schemes)


The Swedish banks, which have long considered the Baltics their ‘home market’, were quick to reap the benefits of the internal market by expanding across the borders. However, the global financial crisis revealed the downside of this expansion and promoted banks to consolidate their position. The institution of the Banking Union, by centralising the supervision and resolution of the banks at the EU level, also incentivised banking groups, such as Nordea Bank, to re-domicile their headquarters from Sweden to the Euro Area. This strategic decision allowed them to benefit from the same set of regulatory standards across the group. The Banking Union remains, however, incomplete as depositor protection is decentralised at the national level. Even though national deposit guarantee schemes (DGS) operate according to harmonised rules set out in Directive 2014/49/EU (Directive), national variations persist. These national divergencies may be problematic as they can undermine the integrity of the internal market for banking services. This tension is at the heart of the Court’s judgement of 30 April 2024, opposing Latvia and Sweden on the question of the transfer of contributions between DGS.

Facts and judgement

The case revolves around the transfer of Nordea Bank’s contributions made to the Swedish DGS to the Latvian DGS following the restructuring of its activities in the Baltic countries. On 1 October 2017, the business of Nordea Bank branches in the Baltic countries was transferred to the subsidiaries of DNB Bank, and those branches changed their affiliation from the Swedish DGS to the Estonian, Latvian, and Lithuanian DGSs. The Swedish DGS refused, however, to transfer to the three receiving DGS contributions, which had been paid to it by Nordea Bank with respect to deposits connected with the activities of its Baltic branches. In support of its decision, the Swedish DGA invoked Article 14(3) of the Directive under which, if a credit institution ceases to be a member of a DGS and joins another DGS, the contributions ‘paid’ during the 12 months preceding the end of the membership, has to be transferred to the other DGS. It argued that, during the 12 months preceding the date of the transfer of the activities of Nordea Bank’s branch to the Latvian DGS, namely during the period from 1 October 2016 to 30 September 2017, it had not paid any contribution to the Swedish DGS. This is because credit institutions have to, in accordance with Swedish law, pay their contributions annually within one month of the decision of the Swedish DGS.

After exhausting other available legal remedies, Latvia brought infringement proceedings against Sweden under Article 259 TFEU. Latvia lodged a complaint with the Commission asking to conclude that, by refusing to transfer to the Latvian DGS the contributions paid by the Latvian branch of Nordea Bank for the 12 months preceding the transfer of that branch’s activities, Sweden had infringed Article 14(3) of the Directive. Latvia also asked the Commission to conclude that Sweden has breached the duty of sincere cooperation laid down in Article 4(3) TEU, claiming that the refusal of the Swedish DGS is undermining the mutual trust between EU Member States. It argued that the refusal of the Swedish DGS to transfer contributions to its DGS undermines the integrity of the internal market and violates the principle of equal treatment of the Member States since, in a comparable legal situation, the Swedish DGS had agreed to transfer contributions to the Finnish DGS. Indeed, following the re-domiciliation of the Nordea Bank seat from Sweden to Finland in 2018, the Swedish DGS transferred to the Finnish DGS the contributions paid by Nordea Bank in the 12-month period prior to the re-domiciliation. In defence, Sweden relied on a literal interpretation of Article 14(3) of the Directive, arguing that the two situations were not comparable since, in the latter case, the 12-month condition was satisfied.

The Commission issued a reasoned opinion supporting Latvia’s first objection but did not uphold the second objection. Similarly, the Court found that Sweden had failed to fulfil its obligations under Article 14(3) of the Directive. It rejected, however, Latvia’s second objection, alleging infringement of the duty of sincere cooperation, considering that it concerned the same conduct as that constituting the infringement of Article 14(3) of the Directive.

The case is of a particular interest due to the use of Article 259 TFEU to seek a declaration from the Court that another Member State has failed to fulfil its obligations under the Treaties. This Article is rarely used due to its blaming character of the alleged rule-breaker. Member States usually prefer that the Commission leads the investigation of the alleged breach of EU law under Article 258 TFEU. The case stands out as one of the few inter-state infringement proceedings brought to the Court under Article 259 TFEU, underscoring its importance as a remedy of last resort.

The interstate infringement proceedings have been rarely used and have been usually reserved for politically sensitive issues. This was the case of actions dealing with the voting rights of Commonwealth citizens in Gibraltar (Spain v. UKC-145/04), a border dispute between Slovenia and Croatia (Slovenia v. CroatiaC-457/18) and the prohibition to enter the territory of Slovakia (Hungary v. Slovak RepublicC-364/10). In other cases, inter-state infringement proceedings have been used to enforce internal market rules. This was notably the case of the UK unilateral fishery protection measure (France v. UK141/78), a Spanish regulation on the designation of origin of wine (France v. SpainC-388/95), the discriminatory German tax relief on the motor vehicle tax (Austria v. GermanyC-591/17), and a license extension to conduct mining activities near the Polish border (Czech Republic v. Poland (Turów mine)C-121/21). If, in several of these cases, infringement proceedings were used as a prelude to a settlement between the Member States, it was used as a remedy of last resort in the commented case.

Furthermore, under Article 273 TFEU, the Member States may elect the Court of Justice by way of a special agreement as a forum to decide any dispute between them that relates to the subject matter of the Treaties. In 2015, Austria seized the Court of Justice under an arbitration clause with a request to settle a dispute on the interpretation of the provisions of the Austro-German double tax treaty regarding the taxation of interest income from hybrid financial instruments (Austria v. GermanyC-648/15). However, the nature of this action is different from inter-state infringement proceedings. Under Article 273 TFEU, the Court has jurisdiction to settle an international law dispute between the Member States having a link with the subject matter of the Treaties. In contrast, disputes between the Member States on the interpretation and application of the provisions of the EU law, such as those of the Directive, should be resolved according to Article 259 TFEU.

The deposit guarantee authorities of the three Baltic States had first initiated a mediation procedure with the Swedish DGA before the European Banking Authority (EBA), which closed the case in 2019 without the parties having reached an agreement. The case attests that a non-binding mediation before EBA may be of a limited effectiveness if the parties are unwilling to reach an agreement. In such cases, the mediation panel may only propose that the Board of Supervisors adopt an opinion or recommendation. Under Article 19 of the EBA Regulation and Article 14(5) of the Directive, a binding mediation mechanism is available only where the DGSs have entered into a cooperation agreement which covers, among others, the transfer of DGS contributions. If the DGSs cannot reach an agreement or if there is a dispute about the interpretation of a cooperation agreement, each party may defer the disagreement for a binding mediation. For instance, this course of action was chosen by the Spanish DGS, which requested the EBA to settle its dispute with the Belgian DGS regarding the transfer of contributions upon the transfer of the banking business. The EBA held that the Belgian DGS should transfer to the Spanish DGS the contributions collected in respect to the 12-month period prior to the credit institution transfer, regardless of the actual date of their payment.

The legal remedies before Swedish administrative courts also proved to be ineffective. They rejected the Estonian DGS’s action against the Swedish DGS’s refusal on the grounds that Swedish law had correctly transposed EU law. The Swedish court also dismissed the request of the Estonian DGS to grant a leave to appeal this judgement to a higher instance and to make a preliminary ruling reference to the Court. It is, however, established case law that a national court, in case of reasonable doubts, has an obligation, under Article 267(3) TFEU, to bring a matter on the interpretation of the EU law before the Court if there is no judicial remedy under national law against its decision. In light of the interpretation retained by the Court, it is evident that the Swedish courts had erred in their findings.

It was only after all these measures had proved ineffective that Latvia decided to initiate infringement proceedings against Sweden to preserve the integrity of its DGS.

Preservation of the integrity of the deposit guarantee scheme

The Court’s conclusion that Sweden has failed to comply with its Treaty obligations is supported by a contextual and purposeful construction of Article 14(3) of the Directive. The Court dismisses the literal reading proposed by the Advocate General de la Tour, considering that only the construction of this provision in the light of its object is capable of preserving the integrity of DGS and a level playing field in the internal market. In doing so, it condemns ‘cherry-picking’ the risks and benefits of the internal market for banking services.

The Court first observes that Article 14(3) of the Directive must be interpreted in the light of Article 10(1) of this Directive, which obliges the DGSs to raise the available financial means by contributions which are to be made by their members at least annually. It follows that the contributions paid by the members to the DGS should be regarded as ‘consideration for the deposit guarantee for a certain period.’ It is, therefore, consistent with the underlying logic of the DGS that, in the event of the transfer of specific activities from a credit institution to another Member State and, consequently, the transfer of liability for the covered deposits to the DGS of that other Member State, the consideration for the deposit guarantee should also be transferred to the receiving DGS. The Court concludes that the Swedish DGA must transfer to the Latvian DGS the contributions paid to it by Nordea Bank, which relate to the 12 months preceding the transfer of its activities to the Latvian DGS, regardless of the actual date on which those contributions had been paid to it.

The Court highlights that the purpose of Article 14(3) of the Directive is ‘to compensate the receiving DGS for the financial risk linked to the transfer of covered deposits of the credit institution’. It concludes that the retained interpretation is the only one capable of ensuring that a DGS of origin, which no longer bears the risk associated with the covered deposits transferred to the DGS of another Member State, does not retain contributions in question solely because they were paid to the DGS after that period. This interpretation is also consistent with the objective of the Directive to protect depositors in the event that the deposits made with a credit institution which is a member of a DGS are unavailable and to ensure the stability of the banking system by avoiding the phenomenon of massive withdrawals of deposits. The interpretation proposed by Sweden must be thus dismissed as being disruptive to the functioning of the internal market. Indeed, it would imply that only the liability to make pay-outs to covered depositors would be transferred to the Latvian DGS, whereas the corresponding contributions would remain with the Swedish DGS.

Finally, the Court highlights the importance of preserving the level playing field in the internal market. The arrival of a new credit institution within a DGS automatically increases the total amount of covered deposits and is liable to result in a call to contribute to that DGS. If the contributions in question were not transferred from the Swedish DGS to the Latvian DGS, the arrival of a new credit institution within the Latvian DGS could result in new calls on the Latvian credit institutions to make additional contributions to the Latvian DGS. This would, however, undermine the solidarity between the members of a DGS and would create market distortions by favouring the DGS of origin to the detriment of the transferring credit institution and the members of the receiving DGS. Indeed, a literal interpretation could create obstacles to the freedom of establishment within the internal market since the DGS receiving the credit institution without receiving the latest contribution made could be incentivized to request an ‘entry contribution’ to compensate for the increase in risk.


The interpretation retained by the Court must be welcomed as it seeks to preserve the integrity of the DGS and the level playing field in the internal market. Also, the Commission has acknowledged that the vagueness of Article 14(3) of the Directive may result in divergent national interpretations, which could cause distortions in the internal market. To mitigate this risk, the Commission has already proposed to amend Article 14(3) of the Directive to clarify that, in the event a credit institution changes affiliation to a DGS, the DGS of origin should calculate the amount of contributions to be transferred based on contributions due rather than contributions paid.

More broadly, the case illustrates the shortcomings of minimum harmonisation and fragmented implementation of the Directive across the EU. In the absence of mutualisation of the default risk at the EU level, the prevalence of national interests in the application of rules leaving a certain margin of appreciation to the Member States may undermine the mutual trust between the Member States and the integrity of the internal market. In this context, a gradual replacement of national DGS with risk-sharing mechanisms at the EU level remains a missing piece of the current crisis management framework for the Euro Area. Establishing the European deposit insurance scheme and the European deposit insurance fund remains a critical outstanding component for completing the Banking Union, which would further enhance financial stability and increase the protection of depositors.

By Mārtiņš Rudzītis is a PhD Researcher at the University of Panthéon-Assas (Paris II) and Of Counsel at Sorainen law firm