Financial regulators consider waiver on deposit insurance cap

The Korea Times

The Korea Times

Finance

Sun, October 1, 2023 | 04:03

Markets

Financial regulators consider waiver on deposit insurance cap

Posted : 2023-03-15 15:59

Updated : 2023-03-16 08:53

Financial Services Commission Chairman Kim Joo-hyun, right, speaks during a meeting at the Government Complex Seoul, Monday. Yonhap

By Lee Min-hyung

The country's financial regulator is considering the removal of a cap on deposits protected by the state-run deposit insurer after the abrupt collapse of Silicon Valley Bank (SVB) sent shockwaves throughout the global financial market.

According to the Financial Services Commission (FSC), the authority recently started reviewing the measure with the Korea Deposit Insurance Corporation (KDIC). For now, the agency only protects deposits of up to 50 million won ($38,400) for each depositor's account from a financial institution.

This came in response to their U.S. counterparts' latest decision to protect deposits from SVB beyond the country's insured cap of $250,000.

Even if the Korean financial market has so far suffered limited shocks from the SVB fiasco, local watchdogs are moving to look into the institutional basis before possibly following in the footsteps of their U.S. counterparts.

Korean financial authorities also reportedly plan to send questions to the Federal Deposit Insurance Corporation, as part of efforts to examine the latter's most recent decision.

In the late 1990s, Korea also took a similar measure by guaranteeing all the deposits and interests from financial institutions, such as banks, insurers and securities firms, in the aftermath of the 1997 Asian financial crisis. The country was hit hard by foreign exchange shortages and ended up seeking assistance from the International Monetary Fund (IMF).

The government announced the financial market stabilization measure ― the gist of which was the government guaranteeing depositors' principal and interest from local financial institutions from Nov. 19, 1997, until the end of 2000. But the announcement was soon mired in controversy. The measure ended up being halted in July 2008.

Starting from 2001, Korean financial authorities placed a cap of 50 million won on the KDIC-protected deposit ― including principal and interest ― and the standard has since not been changed. Given the country's economic growth and inflation over the past two decades, there have been growing calls for authorities to raise the cap.

Meanwhile, financial authorities and the deposit insurer launched a task force to seek revised measures on the issue by teaming up with private institutions. The task force focuses on revising rules on the outdated deposit protection cap and a series of other depositor protection measures. It will release revised suggestions by the end of August 2023. A group of lawmakers proposed to revise the deposit protection cap to 100 million won, but it has yet to receive approval at the National Assembly.

mhlee@koreatimes.co.kr