Up To 1.6 Trillion Won Shortfall Feared... One-Year Extension Sought For Deposit Insurance Fund Special Account For Savings Banks

Established to resolve the 2011 savings bank insolvency crisis
Originally set to end in 2026, now slated for extension through end-2027
Shortfall of 1.2 to 1.6 trillion won expected by year-end

Financial authorities are pushing to extend by one year the operating period of the Deposit Insurance Fund's special account for savings banks, which is scheduled to expire at the end of this year.

On the 11th, following a meeting with financial sector representatives, the Financial Services Commission announced that it will seek to amend the Depositor Protection Act to extend the operating period of the Deposit Insurance Fund's special account for savings banks, currently set to expire at the end of 2026, by one year to the end of 2027.

The meeting was attended by the Financial Services Commission, the head of the Fund Recovery Headquarters at the Korea Deposit Insurance Corporation, and the heads of the Korea Federation of Banks, the Korea Federation of Savings Banks, the Korea Life Insurance Association, the General Insurance Association of Korea, and the Korea Financial Investment Association. Participants shared views from each financial sector on how to handle the remaining liabilities of the special account and agreed to support the extension plan.

The special account for savings banks was established in 2011 to separately manage the funds needed to resolve the savings bank insolvency crisis. At that time, to prevent a deterioration in the soundness of savings banks' own accounts and to block the spread of the crisis to the broader financial system, the Financial Services Commission revised the law so that the costs of resolving insolvencies occurring after 2011 would be separated into a special account and jointly borne by all financial sectors.

The special account was funded through the issuance of Deposit Insurance Fund bonds and inter-account borrowing within the fund, and it was designed to be repaid over time through deposit insurance premium income and the recovery of support funds.

When the account was first set up in 2011, the total cost was expected to be around 15 trillion won. However, as additional insolvencies occurred between 2011 and 2015, about 27.2 trillion won was injected to resolve a total of 31 savings banks, significantly increasing the scale of support. As a result, a shortfall of around 1.2 trillion to 1.6 trillion won is projected at the time the special account is scheduled to end this year.

The Financial Services Commission and the Korea Deposit Insurance Corporation explained that, given that the purpose of creating the special account was to "support the strengthening of the soundness of savings banks' own accounts," extending the operating period by one year is the most reasonable option. They believe that, since a substantial portion has already been repaid through deposit insurance premium income and recovery efforts, extending the period by just one year will be sufficient to eliminate the remaining liabilities.

Going forward, the Financial Services Commission plans to consult with the National Assembly, explain the operation of the special account to date, the status of debt repayment, and the need for an extension, and then pursue the related legal amendments.

A representative of the Korea Federation of Savings Banks said, "We are grateful that all financial sectors have once again joined forces," adding, "We will continue to work to improve the soundness of savings banks so that this support will not be in vain."