Consumers Will Bear Nonsensical Increase in Banking FeesManaging executives of local banks are protesting the government’s decision to raise the security deposit insurance fee next month by 100 percent across the board - with no discrimination between insolvent banks and top-ranking ones.
The security deposit insurance system refers to the practice of charging a certain amount from each bank account according to the bank balance, as insurance against bank insolvency. In the past, banking agencies in fear of crisis have imposed a relatively high insurance fee, while healthy banking agencies have lowered premium rates. However, the government has caused controversy by threatening to contradict this simple economic principle.
The government has absented itself from blame. A commentator from the Ministry of Finance and Economy explained, “Any nation which has undergone a financial crisis increases the security deposit insurance fee in order to relieve the financial strain. This is a global norm. The United States once raised security deposit insurance fees by 1.4 to 2.9 times between 1990 and 1994. Our government was concerned about the burden this might place on Korean business sectors and cautiously raised the rate by 100 percent.”
The discriminatory application of the insurance fee has been suspended - on the grounds of the disturbing impact it would have - until the completion of the financial restructuring the Kim Dae-jung administration is attempting to implement. A finance-economy ministry insider explained that domestic conditions are not yet stable enough to apply a discriminatory security deposit insurance system according to the accountability and profitability of financial institutions.
But this justification stands in stark contrast with government policy, which advocates that banks open up to scrutiny and encourage accountability so that their statuses can be accurately evaluated.
Bank customers have the most to complain about. When the security deposit insurance fee - now totaling $434 million a year - doubles, financial agencies will have to pursuade potential lenders to accept an interest hike, as the additional fees translate into an increased burden for bank customers.
A banking source said angrily,“Clients should be encouraged to select the best institution to trust with their money on standards of accountability and reliability. But now this simple market principle is being ignored.”
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