Use of DGS to finance a transfer covered deposits

To what extent can the deposit guarantee scheme (dgs) be used to facilitate a transfer of covered deposits when applying the sale of business tool?

In order to protect covered deposits of a failing institution, the appropriate strategy may entail the transfer of covered deposits to another financial institution (the "purchaser"). Ideally, such a transfer involves an amount of assets corresponding to the liabilities resulting from the covered deposits. However, this may pose a challenge, in particular if the asset of the failing institution are to a large extent illiquid. In that case, a transfer may be facilitated by using dgs funds to ‘balance’ the transaction. In doing so, the purchaser will receive the funds from the dgs and the dgs subsequently will acquire the rights of the depositors vis-á-vis the failing institutions by way of subrogation. This puts the dgs in the same position would it have executed the dgs and compensated the depositors directly (i.e. the dgs will have paid out an amount of compensation equal to the amount of covered deposits and end up with a preferred claim in the same amount against the bankrupt estate of the failing institution).