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| A pedestrian walks by a row of ATMs on a street in Seoul in July. Newsis |
Authorities to submit proposal to parliament after TF meeting later this week
By Anna J. Park
The coverage limit for deposit protection at local banks, which has been fixed at 50 million won ($37,700) for over two decades, is expected to remain unchanged for this year, according to market watchers. Since 2001, the Korea Deposit Insurance Corporation (KDIC) has insured up to 50 million won per depositor and financial institution.
The policy direction on any changes of the coverage limit for deposit protection at local financial institutions will be clarified later this week, as the Financial Services Commission (FSC), the top financial policy maker in the country, is slated to hold a private and public joint task force (TF) meeting on Thursday, with the attendance of key officials from the FSC, the KDIC, banks, savings banks, insurance companies, and finance academics to share and discuss the results of the TF's research into the issue.
The financial authorities are scheduled to submit their proposal on the issue to the parliament next month, after listening to the opinions of various stakeholders, along with the result of the joint task force meeting on Thursday.
The financial authorities are currently closely examining whether increased insurance fees paid by financial institutions might spur further price inflation and whether the changes related to deposit protection could bring about possibilities of spreading systemic risks and market instability.
While the authorities' view is said to be closer to maintaining the current protection level for the sake of market stability, the National Assembly Research Service (NARS) has also voiced its de facto opposition to raising the deposit protection limit in its recent paper published at the end of July.
The NARS pointed out that an increase in deposit protection would lead to an increase in deposit insurance premiums paid by financial institutions, a burden that is ultimately passed on to financial consumers.
The paper also stated that only 1 or 2 percent of highly wealthy customers of each financial sector will likely benefit by raising the protection bar to 100 million won, as some 98 percent of consumers of domestic financial companies have deposits of less than 50 million won.
Yet, considering Korea's per capita GDP has tripled during the past 22 years, both parties express an understanding that the maintenance of the current deposit protection limit, which has been set at 50 million since 2001, is no longer matching the country's financial prowess. Some bills, pending at the assembly, also aim at upgrading the limit to 100 million won.
As of last year, the ratio of local deposit protection coverage to GDP stood at 1.2, which is way lower than global peers, such as 2.3 in the U.K. and Japan, and 3.3 in the U.S.
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