"SVB Crisis: 'Deposit Protection Limit Should Be Raised to 100 Million Won'"

Assemblyman Hong Seok-jun and Others Urge Passage of Depositor Protection Act Amendment Bill

Following the bankruptcy of Silicon Valley Bank (SVB) in the United States, there are calls within the political sphere to raise the current domestic deposit insurance limit of 50 million won. The argument is that expanding deposit protection will reduce customer anxiety and prevent bank runs (massive withdrawals).

On the 19th, Hong Seok-jun, a member of the People Power Party, urged the passage of an amendment to the Deposit Protection Act to raise the protection limit for banks and insurance companies to over 100 million won. This bill was originally introduced by Hong in March last year and referred to the relevant standing committee, the Political Affairs Committee, but it has yet to be processed and remains pending.

The deposit insurance system is designed to have the Deposit Insurance Corporation pay insurance benefits to depositors on behalf of financial institutions when those institutions cannot pay deposits due to bankruptcy or other reasons. The insurance payout limit is set by presidential decree, considering factors such as gross domestic product per person and the scale of protected deposits. Currently, the limit is 50 million won per person, which was raised from 20 million won in 2001 and has remained frozen for over 20 years.

Korea’s deposit insurance limit is relatively low compared to other countries. In the United States, where the SVB incident occurred, deposits are protected up to $250,000 (approximately 327.37 million won), the United Kingdom up to ?85,000 (135 million won), Canada up to 100,000 Canadian dollars (95 million won), Japan up to 10 million yen (97 million won), and France up to 100,000 euros (139 million won).

The amount of domestic deposits exceeding the deposit insurance limit is also on the rise. It grew from 976 trillion won in 2018 to 1,072 trillion won in 2019, 1,265 trillion won in 2020, 1,422 trillion won in 2021, and 1,504 trillion won in 2022, increasing by more than 500 trillion won over the past five years. This has led to criticism that the effectiveness of the deposit insurance system is declining.

Hong said, “Considering the growth of the economy and the relatively low protection limit compared to foreign countries, it is necessary to raise the deposit insurance limit, which has been frozen for a long time. The National Assembly should promptly pass related legislation to strengthen the effectiveness of deposit protection and establish safeguards that can contribute to the stabilization and revitalization of the financial market.”