Deposit insurance limits could be increased in Korea post-SVB

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Deposit insurance limits could be increased in Korea post-SVB

People walk past automated teller machines in Seoul. [NEWS1]

People walk past automated teller machines in Seoul. [NEWS1]

 
Deposit insurance limits could be increased in Korea amid talk of banks runs following the collapse of Silicon Valley Bank (SVB) in the United States.
 
The Financial Services Commission (FSC) and Korea Deposit Insurance Corporation (KDIC) are discussing measures to raise the limit on government deposit insurance, industry sources said Wednesday.
 
The KDIC protects deposits up to 50 million won ($38,000), principal and interest combined, per person, per financial institution.
 
The 50-million-won limit was established in 2001, up from the previous 20 million. Washington-based Federal Deposit Insurance Corporation insures $250,000 per person, per bank, more than six times the KDIC.
 
The recent decision by the U.S. government to protect all deposits — even the uninsured deposits — kept with the failed banks brought the Korean policy into question.
 
The unconventional action taken by the U.S. regulators came as 87 percent of all SVB deposits were beyond the protected amount, which rendered the insurance system near pointless.
 
Korea also has a history of insuring the uninsured.
 
The government promised to guarantee all deposits, including foreign exchange deposits and certificates of deposits, from November 1997 to 2000 when the Asian financial crisis struck Korea and bankrupted a number of large companies. The measure was terminated early in July 1998 on concerns over moral hazard.
 
“The super-speed SVB bank run is quite possible in Korea as well,” Rep. Kim Byung-wook, vice chairman of the Democratic Party’s policy committee, said in a floor meeting Tuesday.
 
It is necessary to raise the deposit insurance limit to 100 million won from 50 million to relieve customer anxiety and reflect inflation, Kim added.
 
According to data submitted to People Power Party Rep. Kim Hee-gon’s office on Wednesday, 1.15 quadrillion won of deposits exceeded the 50-million mark in June last year, up 65.7 percent from the 724 trillion in 2017.
 
“There’s a need to improve the policy for a more practical protection of deposits, including the expansion of bounds,” Kim said.
 
The government plans to propose measures aimed at furthering depositor protection in August. An expert who was involved in the preliminary stages of the process said the government is aware of the fact that there are many customers who want the upgrade.
 
Some are wary of side effects. If the government lifts the insured amount, the rise in insurance fees paid by financial firms will follow, which can result in higher loan rates or lower deposit rates.
 
“Some 95 percent of all deposits are protected currently,” said a source from the regulators, adding that the move may harm the wider population and only benefit those with large sums of cash.

BY HA NAM-HYUN [sohn.dongjoo@joongang.co.kr]
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