Will the 20-Year-Old Deposit Protection Limit Be Revised... Considering Expansion from 50 Million to 100 Million

Forecast, Financial Services Commission and Major Organization Heads Attend Meeting
Initiation of Work to Improve Fixed Depositor Protection Limit Since 2001
Expansion to 100 Million Won, Differential Application by Industry Expected

[Asia Economy Reporter Minwoo Lee] The Korea Deposit Insurance Corporation (KDIC) is set to begin work on expanding the 50 million KRW deposit protection limit that has remained unchanged for 20 years. Given the significant growth in the economy, there are reports that the protection limit may be raised to 100 million KRW and that differential application by financial sector is also being considered.

On the 23rd, the Financial Services Commission and KDIC will hold an expert and financial sector roundtable in the afternoon to discuss improvements to the deposit insurance system. Attendees will include Financial Services Commission Chairman Seung-beom Ko, KDIC President Taehyun Kim, Kwangsoo Kim, Chairman of the Korea Federation of Banks, Heesoo Jung, Chairman of the Life Insurance Association, Jiwon Jung, Chairman of the General Insurance Association, Jaechul Na, Chairman of the Korea Financial Investment Association, and Hwakyung Oh, Chairman of the Korea Federation of Savings Banks, among other key financial sector leaders. The meeting is expected to gather opinions from various sectors and discuss concrete directions for improvement. Some expect that raising the limit to 100 million KRW will be considered. A financial sector official said, "While the economy has grown significantly, the deposit protection limit has remained at 50 million KRW for over 20 years. This time, the limit is expected to be raised to 100 million KRW, and differential application by sector will also be discussed."

The deposit insurance system is designed to partially reimburse depositors up to the protection limit if a financial institution fails. The fund is created from deposit insurance premiums paid by financial institutions. Following the 1997 Asian financial crisis, the deposit protection limit was raised from 20 million KRW to 50 million KRW in 2001 and has remained fixed for 20 years. According to the Depositor Protection Act, the protection limit should be set considering factors such as the country's gross domestic product (GDP) per capita. South Korea’s GDP per capita was 14.53 million KRW in 2001 but increased nearly threefold to about 41.66 million KRW last year (35,000 USD, based on the National Assembly Budget Office forecast). This has led to criticism that the current system is unrealistic.

KDIC President Taehyun Kim’s emphasis on establishing a new deposit insurance system in his New Year’s address and the major personnel reshuffle earlier this year reflect this perspective. President Kim highlighted building a new deposit insurance system focused on expanding protection coverage, strengthening proactive insolvency prevention, and enhancing sustainability. To establish an effective deposit protection system, the Structural Improvement Division was reorganized into the Financial System Improvement Division.

Recently, KDIC has also begun selecting a specialized institution to conduct research on improving the deposit insurance system. A task force involving experts and financial industry representatives will be formed soon. A KDIC official explained, "We will listen to opinions from various sectors at the roundtable, but specific details have not yet been decided. We plan to derive amendment plans by reflecting the task force discussions and the research results that will be released throughout the year."

The insurance and savings bank sectors are demanding both differential application of deposit protection limits and a reduction in deposit insurance premium rates. Deposit insurance premiums are funds that financial companies set aside with KDIC to compensate depositors for losses if the company cannot repay deposits due to management failure. Under the Deposit Insurance Act, the premium rate for savings banks is 0.4%, higher than banks (0.08%), securities firms and insurance companies (each 0.15%), and comprehensive financial companies (0.2%). This higher rate was imposed following the 2011 Busan savings bank insolvency incident. The insurance industry is requesting differential application of protection limits. An insurance industry official emphasized, "There is no country where insurance companies are basically included in the deposit protection limit. Since the average surrender value is only a few tens of millions of KRW, it is inappropriate to apply the same limit as deposit-taking institutions like banks or savings banks."

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