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| gettyimagesbank |
By Lee Yeon-woo
Discussions are gaining momentum around the idea of raising the cap on the country's state-led deposit insurance coverage, which has remained at 50 million won ($38,270) per person since 2001.
According to sources and media reports, the Korea Deposit Insurance Corporation (KDIC) held closed-door meetings last Wednesday and Friday with banks, savings banks and insurance firms. They exchanged views on plans to overhaul the existing insurance coverage systems.
During these meetings, a range of scenarios were reportedly discussed, including whether the cap should remain at the current level or be raised to 100 million won. Financial authorities will take industry opinions into account and are expected to submit their final report to the National Assembly by the end of August at the earliest.
The deposit insurance coverage ensures that KDIC can return deposits of up to 50 million won per person at each financial institution if it becomes unable to do so due to bankruptcy or suspension of business.
However, relevant industries are hesitant, as their insurance premiums paid to KDIC would inevitably increase if the cap is raised. They also argue that such a burden could be passed on to customers, impacting their interest rates or insurance premiums.
"If our premiums (paid to KDIC) increase, we will have no choice but to raise the fees charged to customers. That is the current structure," said an official from the relevant industry.
There are also significant differences in the positions of commercial banks, savings banks and the insurance industry regarding the increase in the forecast rate.
For instance, if the coverage amount is raised uniformly across all industries, savings banks could benefit the most due to their high interest rates. Meanwhile, commercial banks would have to bear the increased costs, even though they are the least likely to become insolvent.
Financial authorities are hence adopting a cautious approach, given the potential ripple effect of the decision.
"We plan to reach a conclusion by August, following thorough discussions on comprehensive system improvements, including adjustment of the protection limit," said Jun Yo-seop, director general for financial and corporate restructuring policy at the Financial Services Commission.
Momentum to bolster deposit insurance coverage grew following the abrupt collapse of Silicon Valley Bank (SVB) in March.
Some argue that the current deposit insurance cap should reflect the growth of the Korean economy. While Korea's gross domestic product (GDP) has approximately tripled over the last 21 years, the limit has remained unchanged.
Additionally, the cap is considerably lower compared to other major economies. In the U.S., for instance, the coverage extends up to $250,000 per depositor at each insured bank. The U.K.'s coverage caps stands at 85,000 pounds ($108,226) and Japan's is at 10 million yen ($69,471).
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