Why should taxpayers save secondary banking system

By Kim Jae-won

Controversy has erupted over a bill, which seeks to compensate “victims” of savings banks which were forced to close last year due to their poor financial health.

Attempting to buying the hearts and minds of voters ahead of the forthcoming parliamentary election in April, lawmakers passed the so-called ``savings banks compensation bill’’ at the relevant committee of the National Assembly this week.

The bill is expected to go into effect soon after getting approval at a plenary session scheduled for Feb. 16 as both the governing and opposition parties have agreed to pass it.

“Regulators are responsible for the bankruptcies of savings banks as they neglected their duties of supervising the companies. So, it is natural that the government should pay the victims,” said Lee Tae-ho, a secretary of governing Saenuri Party Rep. Huh Tae-yeol.

But not everybody is happy with the bill because it is likely to cost a substantial amount of taxpayers’ money. In particular, the government and associations of financial companies oppose the bill saying it hurts the principle of capitalism, which requires responsibility on the part of investors.

“We are sorry to see the Assembly committee uproot the spirit of legalism. We also worry that other consumers will in similar cases demand compensations,” said five financial associations including the Korea Federation of Banks in a statement.

The special bill calls for the government to use a deposit protection fund to reimburse individual customers and bond investors of the nation’s 18 suspended savings banks for losses in excess of 50 million won ($44,700) each. The current law guarantees only up to 50 million won in deposits.

If passed, over 82,000 bank account holders and bond investors who were not compensated by the failed savings banks are expected to get their money back from the government. The total amount is estimated at about 102.5 billion won.

Kim Oak-ju, a chairwoman of the Busan Savings Bank Victims’ Association, was not available for comment.

Kim has led a protest since spring last year, occupying the headquarters of the lender and urging lawmakers to pass the bill. She and protestors vowed to unseat politicians who oppose the bill in the upcoming election.

Since the 2008 financial crisis, the nation’s regulator has suspended operations of 18 savings banks over their weak financial standing. Among them was Busan Savings Bank, formerly the nation’s largest savings bank, which was at the center of a massive influence-peddling scandal involving bank officials, state auditors and politicians.

Victims have held protests for months across the nation, calling for strong action against those responsible for poor management in addition to tougher regulations and full compensation for their deposits kept in the troubled banks.

Hundreds of Busan Savings Bank customers have lodged class action suits against bank officials, state regulators and accountants, holding them accountable for fraudulent accounting and lax inspections.