Taxpayers’ money may be used for lost deposits

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Taxpayers’ money may be used for lost deposits

People who lost deposits of over 50 million won ($44,500) at suspended savings banks should be compensated with taxpayers’ money instead of the private deposit protection fund as proposed earlier, Huh Tae-yeol, a ruling Saenuri Party lawmaker who chairs the National Policy Committee, said yesterday.

“We plan to propose using the government budget to reimburse savings banks depositors for losses in excess of 50 million won,” Huh said in a surprise move that is expected to further incense the public. “The government should be responsible for the victims’ losses and should compensate them [instead of using a private insurance fund].”

The current law guarantees depositors for up to 50 million won, but what to do with larger sums has been a source of controversy ever since seven savings banks had their operations suspended last September due to their inability to balance their books amid allegations of embezzlement and corruption.

As of January, three of the banks’ executives have taken their own lives.

The government agreed earlier to use the private deposit protection fund to reimburse losses below 50 million, but this has left outstanding deposits of around 102.5 billion won.

Last Thursday, the National Policy Committee passed a special bill to reimburse losses above the stated threshold from the same fund, which is managed by the Korea Deposit Insurance Corporation (KDIC).

Financial institutions including private banks, insurance companies and card firms pay the KDIC insurance fees. In return, the corporation protects them should they run out of cash or in the event of a bank run.

But the bill has met with fierce opposition from the government, the financial industry and the general public, who claim it is unfair that a fund generated partly from depositors’ and taxpayers’ money should be used to repay the more expensive lost deposits. Critics have said the bill “goes against the financial order” and “ignores the principles of lawmaking.” Some argue that the KDIC should also compensate victims using money taken from funds and stocks.

Huh’s latest proposal has appeased the financial industry but drawn the ire of the government, which has already tightened its annual spending allowance in a bid to balance its budget one year ahead of schedule by 2013.

“The money to compensate savings banks victims has not been included in this year’s budget, which was fixed last year,” said an official from the Ministry of Strategy and Finance. “The issue of compensation should, without exception, be resolved based on the country’s insurance protection system.”

By Lee Eun-joo []

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