"Forecast Supports Liquidity Supply and Capital Expansion for Financial Firms"… Financial Services Commission Prepares Amendment Proposal

Measures to Prevent Insolvency in Advance
Amendment to the Depositor Protection Act to Be Submitted to the National Assembly This Year

[Asia Economy Reporter Sim Nayoung] The Financial Services Commission announced on the 31st that it will establish a ‘Financial Stability Account’ within the Deposit Insurance Fund and lay the groundwork for the Korea Deposit Insurance Corporation to provide liquidity to financial companies and support capital expansion.

In the event that numerous financial companies face difficulties due to sudden fluctuations in the financial market, the Financial Services Commission may request support through the Financial Stability Account from the Korea Deposit Insurance Corporation. Financial companies receiving support through the Financial Stability Account must prepare and submit a Management Soundness Improvement Plan and regularly report on its implementation status.

The Financial Services Commission stated, "Due to changes in the financial environment, concerns have increased that crises in specific sectors could spread throughout the entire financial market. There has been a need to prevent insolvency of financial companies and block the spread of crises between financial sectors to minimize the costs required to stabilize the financial system. In particular, our country’s crisis response system has been centered on securing stability after insolvency occurs, and there have been opinions that it needs to be supplemented."

Accordingly, to introduce a system that supplies liquidity and supports capital expansion for financial companies by establishing the Financial Stability Account, an amendment to the ‘Depositor Protection Act’ will be pursued. The Financial Stability Account will be established within the Deposit Insurance Fund and accounted for separately from other accounts of the fund. The Financial Stability Account will be operated using resources such as the issuance of Deposit Insurance Fund bonds, borrowings from other accounts of the Deposit Insurance Fund, and guarantee fee income.

If liquidity tightens for multiple financial companies, or if improvement of financial structure or capital expansion is needed for multiple financial companies, or if the Financial Services Commission recognizes it as necessary to maintain the stability of the financial system, the Financial Services Commission may request funding support from the Korea Deposit Insurance Corporation after consulting with related agencies such as the Minister of Strategy and Finance, the Governor of the Financial Supervisory Service, and the Governor of the Bank of Korea. Additionally, upon request from the Financial Services Commission, the Korea Deposit Insurance Corporation may provide funding support to financial companies using the resources of the Financial Stability Account after a resolution by the Deposit Insurance Committee.

Financial companies intending to apply for funding support must submit a ‘Management Soundness Improvement Plan,’ including measures to improve their financial situation, to the Korea Deposit Insurance Corporation. When a financial company applies for funding support, the Korea Deposit Insurance Corporation will review the requirements for funding support, the necessity of funding support, and the contents of the Management Soundness Improvement Plan. However, insolvent or potentially insolvent financial companies are not eligible for support from the Financial Stability Account.

Financial companies that receive funding support must submit a semiannual report on the implementation status of the Management Soundness Improvement Plan to the Korea Deposit Insurance Corporation. The Financial Supervisory Service may request data on the implementation status and inspection results of the Management Soundness Improvement Plan from the Korea Deposit Insurance Corporation to perform supervisory duties over financial companies. Furthermore, based on this, the Financial Supervisory Service may conduct inspections or joint inspections of financial companies.

The amendment to the Depositor Protection Act will go through related procedures such as legislative notice and review by the Ministry of Government Legislation, and is planned to be submitted to the National Assembly within this year.

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