Sunset Approaching '0.5% Forecast Insurance Rate'... Extension to Be Pursued Through Legislative Bill

Korea Deposit Insurance Corporation Faces Annual Premium Revenue Drop of 700 Billion to 800 Billion Won After Sunset... "Burden of Restructuring Costs at Risk"
Current 50 Million Won Deposit Guarantee Limit to Be Raised Above 100 Million Won
KDIC Includes 'Virtual Asset Service Providers' in Data Provision Requests for Damage Claims

A bill to amend the Depositor Protection Act to extend the sunset provision on the Deposit Insurance Fund premium rate cap (0.5%), which is set to expire this August, is being promoted as a member-initiated legislation. Attention is focused on whether the amendment, which was stalled and faced expiration due to the 21st National Assembly's inactivity, can be swiftly processed in the 22nd National Assembly. Additionally, an amendment to raise the deposit insurance coverage limit, currently set by law at 50 million KRW, to over 100 million KRW for the first time in 23 years, considering the scale of the economy, is also being pursued to stabilize the financial market and protect depositors.

According to the Korea Deposit Insurance Corporation and the National Assembly on the 8th, lawmakers Kang Min-guk, Kim Yong-man, Shin Young-dae, Kim Han-gyu, and Jung Jun-ho, members of the Political Affairs Committee, submitted a partial amendment bill to the Depositor Protection Act with these key points. The current Depositor Protection Act stipulates that the premium rate cap for accumulating the deposit insurance fund to prepare for financial insolvency is set within 0.5% for all financial sectors, and the presidential decree specifies the detailed premium rates for each sector.

In particular, the supplementary provisions of the Depositor Protection Act set the application period for the premium rate cap until August 31 of this year, and if not redefined within the period, the premium rate cap regulations for each sector established in the 1998 Depositor Protection Act will apply.

The amendment proposes to extend the 0.5% premium rate cap regulation for more than two years to stabilize the financial market and protect depositors. Lawmaker Kim Yong-man's bill extends the 0.5% premium rate cap until August 31, 2027, while Kang Min-guk's bill extends it until December 31, 2027. If the application period for the premium rate cap is not extended, a lower premium rate cap than the current one will apply, resulting in an annual reduction of 700 billion to 800 billion KRW in premium income from banks, securities dealers, brokers, and mutual savings banks whose premium rates are currently below the cap.

Lawmaker Kang Min-guk explained, "This could disrupt the repayment of remaining debts in the special account operated to cover past savings bank restructuring costs, and since the current accumulation of the deposit insurance fund is insufficient due to repayment of restructuring costs, there is a risk of undermining the soundness of the deposit insurance fund. To prevent a decrease in premium income and secure the stability of the deposit insurance fund, we intend to extend the deadline until the end of 2027, when repayment of past restructuring costs from the foreign exchange crisis and savings bank insolvencies will be completed."

An amendment to raise the deposit insurance coverage limit, currently 50 million KRW, to over 100 million KRW is also being pursued. The current law sets the deposit protection limit by presidential decree, considering various economic indicators such as gross national product to stabilize the financial market and protect depositors, and the enforcement decree has set the deposit protection limit at 50 million KRW since 2001.

However, there have been many calls to expand the deposit insurance coverage limit considering the continuous growth of the domestic economy, including the per capita gross domestic product. As of 2020, the per capita gross domestic product was 37.6 million KRW, and as of the end of June this year, the insured deposit amount was 2,419 trillion KRW, which has increased three to nearly five times compared to 2001.

Accordingly, lawmaker Jung Jun-ho proposed an amendment to allow the deposit insurance coverage limit to be set by presidential decree within a range of over 100 million KRW, differentiated by financial industry sectors, and to require the Financial Services Commission to review the appropriateness of the deposit insurance coverage limit by financial sector every five years and report the results to the relevant standing committee of the National Assembly. Lawmaker Kim Han-gyu proposed an amendment to allow the deposit insurance coverage limit to be set by the decision of the Deposit Insurance Committee within a range of over 100 million KRW and to provide a basis for expanding deposit protection to the full amount of deposits through a resolution of the State Council in urgent cases requiring protection of depositors, such as significant financial or economic crises.

The "Chae Sang-byeong Special Prosecutor Act" has passed the National Assembly hurdle, but the extreme confrontation between the ruling and opposition parties is just beginning. If the president exercises the right to request reconsideration (veto), the ruling and opposition parties will have to engage in another strategic battle over the re-vote. The opening ceremony of the National Assembly scheduled for the 5th was also canceled due to the ruling party's absence, making normal parliamentary operations difficult. The photo shows the National Assembly covered by dark clouds on the 5th. Photo by Kim Hyun-min kimhyun81@

Meanwhile, an amendment is also being promoted to add "virtual asset service providers" to the scope of data provision requests so that the Korea Deposit Insurance Corporation can effectively claim damages from insolvent financial companies and track hidden assets of insolvent debtors.

Lawmaker Kim Han-gyu explained, "The current law limits the scope of data provision requests by the Deposit Insurance Corporation to the Court Administration Office, relevant central administrative agencies, local governments, etc. Since virtual assets have become a likely alternative for hiding assets, we intend to add virtual asset service providers to the institutions subject to data provision requests to increase the recovery rate of claims and ensure fairness."