KDIC chief says financial stability account, rapid resolution regime can no longer wait

By Kim Byeo-ri, The Herald Business

Korea Deposit Insurance Corporation President Kim Sung-sik said the agency must "strengthen its financial stability functions and advance into a world-class financial stability institution."

The KDIC held a ceremony Sunday marking its 30th anniversary under the slogan "Financial stability built on trust, protecting the everyday lives of the people."

In his commemorative address, Kim said the corporation is "facing an unprecedented turning point that calls for a fundamental redesign of the deposit insurance system, as the special account for savings banks and the KDIC bond repayment fund are set to expire in succession."

He said the financial stability account — which would provide debt guarantees and capital support to sound financial institutions facing temporary difficulties, heading off the spread of a crisis before it takes hold — and the rapid resolution regime, which would allow administrative measures such as contract transfers to be carried out swiftly in the event of a bank run, "can no longer be delayed." Kim also said the agency must overhaul its deposit insurance premium structure by recalculating the appropriate target fund size and premium rates, and pursue reforms tailored to the characteristics of different financial sectors and depositors. He went on to say the KDIC should also work to strengthen protections for actual depositors, expand support for the government's inspections of saemaul financial cooperatives, and improve the financial soundness of mutual finance institutions.

"If we have focused solely on resolving immediate financial stability issues, we must now think more broadly about how to become a KDIC that delivers greater benefits to the public," he added.

The financial stability account is a mechanism that would provide debt guarantees and capital support to otherwise sound financial institutions facing temporary difficulties, preventing a crisis from spreading before it materializes. Under current rules, KDIC funds can only be deployed to institutions where insolvency has already occurred; the core of the proposed reform is to extend that support to institutions still operating normally. The rapid resolution regime would allow an insolvent financial institution to be sold or transferred quickly, without requiring the consent of stakeholders.

Meanwhile, the KDIC unveiled a new vision at the ceremony: "A KDIC that protects the financial lives of the people and adds stability to finance." The agency also published "New Deposit Insurance Theory," a volume covering research on the deposit insurance system and financial stability, and "30 Years of the Korea Deposit Insurance Corporation," a record of the agency's achievements over the past three decades.

The KDIC is responsible for protecting depositors and maintaining the stability of the financial system. It guarantees deposit payouts when a financial institution cannot meet its obligations due to bankruptcy or other causes. The corporation was established June 1, 1996, under the Depositor Protection Act.