Financial Services Commission to Reinitiate 'Financial Stability Account and KDB Transfer'

"Preventing Crisis Contagion Through Proactive Financial Support"
Also Proposed in the 21st National Assembly but Failed
Re-proposing the Expiration Date for Applying the Limit on the Insurance Premium Rate of the Reserve Fund
Reviewing Support Measures for Small Business Owners Including Lowering the Commission Rate for Card-type Onnuri Gift Certificates

The Financial Services Commission (FSC) is set to reintroduce bills that stalled in the 21st National Assembly, including the introduction of a Financial Stability Account to respond to financial crises and the relocation of the Korea Development Bank (KDB) headquarters. It also plans to pursue policies through legislative amendments such as extending the application period for the deposit insurance premium rate cap, expanding the authorized capital limit of KDB, and establishing grounds for the issuance of securitized bonds by the Korea Credit Guarantee Fund (KODIT).

According to financial circles and the National Assembly on the 15th, these details were included in the "Major Proposed Bills" report submitted by the FSC to the offices of lawmakers belonging to the National Assembly's Political Affairs Committee. First, the FSC will push for the introduction of a Financial Stability Account to supply liquidity during crises. The Financial Stability Account is a policy that proactively provides funds to financially distressed institutions using the Deposit Insurance Fund and other resources. In the event of concerns about a financial market crisis, it supports not only liquidity supply through debt guarantees or loans but also capital expansion through preferred stock purchases. This is to prevent financial institution insolvency and maintain the stability of financial markets and systems by blocking crisis contagion.

Although this was also pursued in the 21st National Assembly, no conclusion was reached on whether the decision-making authority for fund support activation should rest with the Korea Deposit Insurance Corporation (KDIC) or the FSC. The government and ruling party favored KDIC as the entity responsible for the Financial Stability Account, but opposition parties argued that the government should take more responsible liquidity measures and that the financial authorities should be the responsible party. A similar bill has already been proposed. On the 11th, Kim Hyun-jung, a member of the Democratic Party of Korea, introduced a revision to the Depositor Protection Act to establish the Financial Stability Account. The key point of Kim’s amendment is to establish the Financial Stability Account separately from the Deposit Insurance Fund within KDIC, but to designate the FSC as the fund support authority after consultation with the FSC, which will decide on fund support in cooperation with related institutions.

Regarding the Depositor Protection Act, the extension of the application period for the deposit insurance premium rate cap will also be re-pursued. To prepare for financial insolvency, the premium rate cap for the Deposit Insurance Fund is set at within 0.5% for all financial sectors. The FSC plans to push a bill to extend this cap until December 31, 2027, when repayment of past restructuring costs related to the foreign exchange crisis and savings bank insolvencies will be completed. The purpose is to stabilize the financial market and protect depositors. If the cap application period is not extended, a lower premium rate cap than the current one will apply. This could reduce premium income by more than 700 billion KRW annually from banks and savings banks with rates lower than the current premium rate, potentially damaging the soundness of the insurance fund. The current application period for the premium rate cap expires on August 31 of this year. The extension period matches the bill introduced by Kang Min-guk of the People Power Party on the 25th of last month.

The relocation of KDB’s headquarters to Busan is also expected to become a contentious issue again. The FSC stated, "To promote the relocation of KDB to a local area, it plans to change the head office location of Korea Development Bank, currently defined as 'Seoul Special City' under the KDB Act." In line with this, all 17 People Power Party lawmakers from the Busan region, including Park Soo-young, have introduced a bill with similar content. Until last year, the government had completed administrative procedures for KDB’s relocation to Busan, such as public institution designation notices, and only legislative amendments remained. However, four bills to amend the KDB Act were introduced in the last National Assembly but all were discarded.

Grounds for the issuance of securitized bonds by KODIT will also be established. Currently, KODIT’s guarantee of securitization companies is only regulated through the issuance of securitized bonds by special purpose companies (SPCs). The amendment aims to add a method for issuance using KODIT’s own trust accounts. Through this, KODIT will directly issue project collateralized bonds (P-CBOs) to alleviate the financial burden on small and medium-sized enterprises (SMEs) and mid-sized companies.

Reforms related to the capital market and virtual assets will also be pursued. Representative measures include improving systems such as establishing a computerized short-selling system, institutionalizing the issuance and distribution of token securities (STO), introducing business development companies (BDC), and implementing a major shareholder screening system for virtual asset service providers along with strengthening reporting and screening operations.

Meanwhile, the FSC is also concretizing existing policies in addition to major proposed bills. As part of the support measures for small business owners and self-employed announced on the 3rd, the FSC is considering lowering the commission rate for card-type Onnuri gift certificates. The current rate of 0.5% to 1.5% would be reduced to 0.25% to 1.2%. The FSC plans to collaborate with the National Tax Service to enhance credit evaluation for individual business owners using tax filing information and to establish a credit evaluation system centered on business site information.