2023-09-07 09:04:26
When the limit is raised, insurance premiums inevitably rise
Concerns about ‘money move’ as a savings bank
Discussions on whether to raise the domestic depositor protection limit, which has remained at ’50 million won’ per capita for 23 years, to 100 million won, will begin in earnest at the National Assembly next month.
In the political world, voices prevailing that it is time to raise the depositor protection limit as the size of the economy has grown.
According to the financial sector on the 7th, the Financial Services Commission and the Korea Deposit Insurance Corporation will report on measures to improve the depositor protection system next month. An official from the Financial Services Commission said, “We plan to report the pros and cons of changing the depositor protection limit without deciding on a specific plan.” It is expected that this opportunity will increase the depositor protection limit.
In the political world, the prevailing opinion is that the depositor protection limit should be raised. There have already been 11 proposed amendments to the depositor protection limit. The depositor protection limit has remained at 50 million won since 2001. The ratio of Korea’s depositor protection limit to GDP per capita is 1.2 times, which is lower than that of the US (3.3 times), the UK (2.3 times), and Japan (2.3 times).
In particular, as concerns about a ‘bank run’ (large-scale withdrawal of deposits) grew in the wake of the bankruptcy of Silicon Valley Bank (SVB) in the United States in March, opinions on raising the depositor protection limit gained strength. This is because raising the depositor protection limit to 100 million won can suppress the anxiety of depositors when concerns about the possibility of bankruptcy arise.
Central banks are not happy. The Korea Deposit Insurance Corporation receives insurance premiums from financial institutions and accumulates them into a fund, and pays deposit insurance money to customers instead when financial institutions become insolvent to pay deposits.
The financial sector believes that when the depositor protection limit is raised, an increase in deposit insurance premiums is inevitable. Moreover, given that there is a high possibility of a ‘money move’ (money transfer) to a savings bank that offers a relatively high deposit interest rate, commercial banks are calculating that ‘there is nothing to gain’. The Korea Finance Association has estimated that if the protection limit is raised to 100 million won, savings bank deposits can increase by up to 40 percent. Reaction from the savings bank industry was mixed. An official from a savings bank said, “The savings bank deposit rate is already high, but if it is raised further, the burden is heavy.”
Currently, the depositor fee rate set under the Depositor Protection Act is 0.08% for banks and 0.40% for savings banks, which is five times higher than savings banks. However, there are also opinions that it is positive that raising the limit to 100 million won can improve the image of savings banks.
Reporter Song Soo-yeon
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