20 Years Stagnant 50 Million Won Deposit Protection... Increased Insured Deposits Strengthen Limit Raise (Comprehensive)

"Deposit Protection Limit Increased by 50 Million Won?"
Calls for Stronger Deposit Protection Grow
The Scale of Insured Deposits Under Deposit Protection Continues to Expand
Preference for Safe Assets Strengthens Amid COVID-19, Growth Rate Jumps to 3% Range

[Asia Economy Reporter Park Sun-mi] There are growing calls to raise the deposit protection limit, which has remained unchanged for 20 years, from the current 50 million KRW to around 100 million KRW. The demand for adjusting the limit is gaining momentum as the amount of insured deposits eligible for protection has steadily increased amid economic uncertainties caused by the novel coronavirus disease (COVID-19).

Assemblyman Cho Kyung-tae: "Insured deposits tripled in 20 years... Why has the deposit protection limit remained at 50 million KRW?"

According to the National Assembly Legislative Information System on the 22nd, recently, Assemblyman Cho Kyung-tae of the People Power Party has introduced a partial amendment bill to the Depositor Protection Act aimed at raising the deposit protection limit. The enforcement decree of the Depositor Protection Act, revised in 2001, stipulates that if a financial company goes bankrupt or an accident occurs, depositors can only be protected up to 50 million KRW per financial company, including principal and interest.

The deposit protection limit has been frozen for 20 years since it was set in 2001. Assemblyman Cho stated, "Considering that the gross domestic product per capita has increased about 2.5 times and the scale of insured deposits has tripled over the past 20 years, there is a need to raise the deposit protection limit," adding, "By allowing the limit to be set by presidential decree within a range exceeding 100 million KRW, we can reflect changes in the economic environment and strengthen protection for depositors and others." He also emphasized that the amendment should be enacted to take effect from January 1 of next year.

Because there has been no change in the deposit protection limit for 20 years, there have been continuous calls, mainly from political circles, to adjust the deposit insurance limit to reflect changes in GDP per capita and deposit scale. However, raising the deposit protection limit is a complex issue involving conflicting interests among financial sectors, as it could lead to large-scale fund outflows from primary financial institutions and increased deposit insurance premiums. Therefore, financial authorities have maintained a cautious stance.

Insured Deposits Protected Increase by 3.4% in Q2

The scale of insured deposits eligible for depositor protection has surged due to increased preference for safe assets amid economic uncertainty caused by the spread of COVID-19. Insured deposits refer to deposits protected by the Korea Deposit Insurance Corporation (KDIC), including bank and savings bank deposits, investor deposits at financial investment firms, insurance company reserves, and CMA accounts at securities companies, excluding deposits where the depositor is the government, local governments, or insured financial companies.

The KDIC announced that as of the end of the second quarter this year, insured deposits amounted to 2,419.5 trillion KRW, a 3.4% increase compared to the previous quarter. This represents an increase of 80.5 trillion KRW over three months. Compared to average quarterly increases of 1.0% and 1.7% in total insured deposits in 2018 and 2019 respectively, the 3.4% rise at the end of Q2 this year reflects a sharp upward trend.

In particular, bank insured deposits increased by 4.5% at the end of Q2 this year, compared to average quarterly increases of 0.9% and 2.1% in 2018 and 2019 respectively. Savings bank insured deposits also rose to 6.4% at the end of Q2 this year, up from average increases of 3.5% and 1.5% in 2018 and 2019.

Meanwhile, partial amendment bills to the Depositor Protection Act have also been proposed by both ruling and opposition parties to allow the KDIC to demand the return of mistaken remittances from recipients on behalf of the remitter. This increases the likelihood of the bill passing in the 21st National Assembly. Recently, Assemblyman Sung Il-jong, the opposition party’s Policy Committee secretary, introduced a bill allowing the KDIC to request the return of mistaken remittances from recipients on behalf of the remitter. In June, Assemblywoman Yang Kyung-sook of the Democratic Party, and in July, Assemblyman Kim Byung-wook, the ruling party’s Policy Committee secretary, each introduced similar bills.

This content was produced with the assistance of AI translation services.