'Saemaeul Geumgo Aftershock' Government Intervention for the Third Time... Key to Containing the Bank Run

Financial Services Commission Chairman Kim Ju-hyun holds a press conference on the first anniversary of his inauguration at the Government Seoul Office in Jongno-gu, Seoul, on the 7th. Photo by Yoon Dong-joo doso7@

As public anxiety grows over the Saemaeul Geumgo crisis, the government has stepped in three times within a week to contain the situation. In particular, managing the bank run (mass withdrawal of deposits) has become crucial.

On the morning of the 7th, Financial Services Commission Chairman Kim Joo-hyun held a press briefing urging the public to trust the government, warning that if deposits are withdrawn, even normally operating Saemaeul Geumgo institutions could face difficulties. Chairman Kim moved the briefing forward from the originally scheduled 9:30 a.m. to 8:20 a.m., apparently intending to reassure the public before Saemaeul Geumgo branches opened and prevent further withdrawals.

This week alone, the government has held three briefings or press conferences to manage the Saemaeul Geumgo situation. Concerns about Saemaeul Geumgo’s insolvency have risen as the overall delinquency rate surged to 6.18% (as of the end of June). On the 4th, Kim Kwang-hwi, Regional Economic Support Officer at the Ministry of the Interior and Safety, briefed the public on a special inspection of Saemaeul Geumgo. As the situation worsened, on the 6th, the Ministry of the Interior and Safety, Ministry of Economy and Finance, Financial Services Commission, Financial Supervisory Service, and Bank of Korea held a joint briefing assuring the public that liquidity support through government borrowing would be provided if necessary. The very next day, the head of the financial authorities stepped in for additional containment efforts. Throughout, Chairman Kim emphasized that preventing deposit withdrawals was more urgent than any special measures. Although not at a briefing, First Vice Minister of Economy and Finance Bang Ki-sun also stated at an emergency economic vice ministers’ meeting that "there is no basis for concerns about Saemaeul Geumgo."

The government’s proactive stance reflects heightened fears of a bank run. The financial sector views that even a sound bank could collapse if over 20 trillion won in deposits were withdrawn. Saemaeul Geumgo’s deposit balance stood at 258.2811 trillion won as of the end of April, down 6.9889 trillion won from the end of February. By the end of June, the figure recovered to 259.5 trillion won, but recent developments have created a tense atmosphere. At Namyangju Dongbu Saemaeul Geumgo in Namyangju City, Gyeonggi Province, where a merger has been decided, scenes of customers lining up to withdraw deposits have been reported. Some Saemaeul Geumgo branches have even sent text messages disclosing soundness indicators to calm customers amid a surge in cancellation inquiries. Cases of office workers taking leave to withdraw deposits have also become increasingly common.

Moreover, concerns about supply pressure have emerged as a flood of bonds issued by Saemaeul Geumgo hit the market, and rumors have circulated that the Saemaeul Geumgo Central Association instructed the sale of stocks, creating tension in the market. In response, Chairman Kim drew a clear line, stating, "If normal funds flow into Saemaeul Geumgo and cooperation is ensured to prevent withdrawals, there will be no market changes caused by Saemaeul Geumgo."

Saemaeul Geumgo has also introduced additional measures to prevent the bank run. Starting today, the Saemaeul Geumgo Central Association will promote the re-deposit of prematurely terminated savings and installment savings. This applies only to deposits terminated between the 1st and 6th of this month. After application, deposits and savings will be restored with the same agreed interest rate and maturity as before.

Experts point out that fundamental reforms will be necessary once this crisis is overcome. Professor Han Jae-jun of Inha University’s Department of Global Finance said, "For now, preventing the rush to withdraw deposits is key," but also advised, "Given that the Saemaeul Geumgo Central Association cannot strongly supervise Saemaeul Geumgo under the current structure, it is necessary to establish an independent mutual finance supervisory agency to ensure autonomy in supervision."