"Extremely Low Possibility of SVB-Like Incident"
"Full Protection Even During the Foreign Exchange Crisis... Contingency Plans Under Review"
Financial authorities have begun reviewing measures to implement 'full deposit protection' when a bank run (massive withdrawal of deposits) triggers an economic emergency. This follows the United States' decision to guarantee full deposit protection amid controversy to stabilize the financial market after the collapse of Silicon Valley Bank (SVB) raised the possibility of a financial crisis.
According to the financial sector on the 15th, the Financial Services Commission, together with the Korea Deposit Insurance Corporation, is examining a plan to guarantee full payment of deposits by financial institutions in the event of a bank run. Although the likelihood of an incident similar to the SVB collapse occurring domestically is low, the intention is to review the overall system in preparation for emergencies.
Earlier, on the 12th (local time), the U.S. Department of the Treasury, the Federal Reserve (Fed), and the Federal Deposit Insurance Corporation (FDIC) announced that they would guarantee full payment of deposits exceeding the depositor protection limit ($250,000) for SVB and Signature Bank, which were facing bank runs. In SVB's case, since it mainly dealt with technology industry investment firms and startups, the proportion of large deposits exceeding the depositor protection limit exceeded 90%. Although this measure was criticized as a 'de facto bailout (Fail out),' the prevailing assessment is that it contributed to the early stabilization of the financial market.
There is also a precedent in South Korea. During the foreign exchange crisis, when the insolvency of financial institutions spread, the government announced a financial market stabilization plan guaranteeing full principal and interest payments on all deposits by financial sectors from November 19, 1997, until the end of 2000. This measure ended in July 1998 amid moral hazard controversies.
Authorities believe that since the current insurance payout limit under the Depositor Protection Act (50 million KRW) is stipulated by presidential decree, there is an institutional basis for the government to lift the limit through administrative legislation in emergencies. However, as the economic scale and financial market environment have changed since the law was enacted, they plan to review cases like SVB.
A financial authority official stated, "The possibility of a bank run occurring in Korea under the current situation is extremely low," adding, "With the emergency situation caused by the SVB incident, the U.S. decided on full deposit protection, and since we also have a precedent of full deposit protection during the foreign exchange crisis, we are currently reviewing response measures on what to do in similar situations."
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