Consensus Reached Between Ruling and Opposition Parties at the Legislation Review Subcommittee of the Political Affairs Committee... High Possibility of Passing the Plenary Session
Implementation Scheduled for Next Year, Specific Timing Entrusted to Financial Authorities
Concerns Persist Over Excessive Concentration in Secondary Financial Sector and Increase in Deposit Insurance Premiums
Financial Authorities Expected to Continue Communication with Deposit Insurance Corporation, Financial Sector, and Experts
The bill to raise the depositor protection limit from 50 million won to 100 million won has passed the hurdle of the National Assembly's Political Affairs Committee's bill subcommittee, and the financial authorities, who will take over the baton, are expected to make their moves more concrete. The financial authorities, who have taken a relatively cautious stance on the introduction, are expected to decide on specific matters such as the timing and methodology of implementation through continued communication with financial companies as well as experts.
According to the financial authorities and the National Assembly on the 26th, the first subcommittee of the Political Affairs Committee approved the amendment to the Depositor Protection Act to raise the depositor protection limit to 100 million won the day before. Although the full Political Affairs Committee meeting and plenary session approval procedures remain, smooth passage is expected as there is little disagreement between the ruling and opposition parties. Both sides have raised their voices for increasing the depositor protection limit by proposing eight related bills so far.
If the amendment finally passes the National Assembly, the protection amount, which has been capped at 50 million won for 23 years since 2001, will be doubled. However, considering various concerns such as the concentration of funds in the secondary financial sector due to the limit increase, the Political Affairs Committee decided to set the implementation date as "the date prescribed by the Presidential Decree within one year after the promulgation of the amendment" and to entrust the financial authorities with this matter. A representative from the office of a Political Affairs Committee member explained, "There was almost no difference in opinion between the ruling and opposition parties regarding the purpose of the amendment," adding, "Even considering the market impact, there is a consensus not to indefinitely delay the implementation timing."
Changes are also expected in the financial authorities' approach, who need to establish specific methodologies. While the financial authorities have agreed on raising the depositor protection limit, they have expressed concerns that deposits eligible for protection might shift to the secondary financial sector. According to last year's research results, the financial authorities stated that if the protection limit increases to 100 million won, savings bank deposits could increase by up to 25%. The report from the research project added, "Although only about 1% of bank deposits might move, so the overall market impact may not be significant, excessive competition for deposits among savings banks could shock some small companies."
Therefore, the financial authorities have conveyed to the National Assembly their position that the implementation date should be set with at least a one-year period before full enforcement. They have particularly argued that the real estate project financing (PF) restructuring, which is intensifying from the second half of this year, and additional consumer burdens should be taken into account. On the 24th, Kim Byung-hwan, Chairman of the Financial Services Commission, appeared on KBS Sunday Diagnosis and explained, "Due to fund movement, the market could shift and there are soundness issues, so during the National Assembly discussions, we are considering a flexible approach to the implementation timing."
The biggest concern for financial companies is the increase in deposit insurance premiums following the rise in the depositor protection limit. Deposit insurance premiums are structurally inevitable to increase as the protection limit rises. The current deposit insurance premium rate is up to 0.5% of the balance, applied with variations by sector. Banks pay 0.08%, insurance companies 0.15%, securities trading and brokerage 0.15%, and savings banks 0.40%. According to the financial authorities' research results, raising the limit to 100 million won could increase the deposit insurance premium rate by about 27% compared to the current rate.
Some point out that as the deposit insurance premium rate rises, the cost could be passed on to financial consumers. It is analyzed that financial companies might adopt strategies to compensate for the increased costs through service fees, loan interest rate hikes, and so on. A representative from a commercial bank said, "There is a high possibility that costs will structurally increase," adding, "How much it will specifically increase and how to internally manage the increased costs are tasks that need to be discussed with the authorities and related organizations such as the Korea Deposit Insurance Corporation."
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