During the 1997 Asian Financial Crisis, the Korea Deposit Insurance Corp. (KDIC)’s adoption of blanket coverage restored the public’ s confidence in the financial system. The integration of deposit insurers which has previously been scattered in different financial sectors into one organization enabled further enhancement of public confidence. 

By preventing bank-runs and boosting financial competitiveness, the KDIC helped to improve foreign investors’ confidence in the Korean economy and achieve an early turnaround. The KDIC’ s decisive response was crucial to overcoming the crisis. Also in the course of the financial restructuring which was undertaken in the wake of the crisis, the KDIC successfully resolved over 500 financial institutions and gained unique expertise in resolution.

With reinforced public confidence in deposit insurance, the KDIC went into the recent global financial crisis more prepared. There was no sign of bank-runs. Only five mutual savings went bankrupt during 2008-2009. The KDIC decided to expand its coverage to include foreign-currency deposits and other products for additional protection. Also, the KDEC established a Contingency Plan in order to better cope with future crisis. 

The KDIC’ s Responsibilities

Korea Deposit Insurance Corporation (KDIC) implements deposit insurance policies and manages funds. The funds in the KDIC are divided into the Deposit Insurance Fund Bond Redemption Fund and the (New) Deposit Insurance Fund (DIF). The Redemption Fund was established to complete the financial restructuring and recover public funds injected during the first and second rounds of financial assistance following the 1997 financial crisis. The new DIF could start with a clean slate from then. The annual premium revenue of the DIF in 2009 was 1.24 trillion won.

The KDIC identifies troubled financial institutions through on- and off-site monitoring and requests financial institutions or supervisory authorities to take appropriate actions to prevent failure. 

The KDIC supports an insolvent financial institution in accordance with the following four principles: Least Cost Principle, Loss-Sharing Principle, Self-Help Effort Principle and Transparency/Objectivity Principle. 

And the KDIC usually uses one of two methods: deposit payoff and financial assistance. Financial assistance includes loan extension and fund deposit, purchase of assets and assumption of liabilities, equity investment and contributions. 

Protects Depositors’ Money as an Integrated Deposit Insurer

The KDIC insures banks, financial investment companies, life and non-life insurance companies, merchant banks and mutual savings banks (five sectors). As of the end of 2009, 321 financial institutions’ products were under the protection of the KDIC.

The corporation insures bank deposits, customer’ s deposits for securities trading, individual insurance policies, etc. On the other hand, it does not insure CDs, RPs, securities, CPs, etc. Also, the deposit insurance excludes deposits by government and insured financial institutions, etc. from its insured products.

The KDIC covers up to 50 million won ($42,823) per depositor. It is 2.5 times of Korea’ s per capital GDP ($17,074).

The premium rates are determined on the basis of the average annual balance of deposits in each sector. The rates are 0.08% for banks, 0.15% for financial investment companies, insurance companies and merchant banks and 0.35% for mutual saving banks. 

Contributions to the IADI

The KDIC continuously strives to position itself as a global player and strengthen its capacity by enhancing cooperation with international organizations including the International Association of Deposit Insurers (IADI), of which the KDIC is a founding member. 

The corporation successfully hosted the 2003 IADI Annual Meeting & Conference. As an Executive Council member since the founding of the association, the KDIC vice-chaired the Research & Guidance Committee between 2005 and 2008, which is a key standing committee of the IADI. It has also actively participated in the formation of the global financial regulation as a member of the International Working Group to establish the Core Principles for Effective Deposit Insurance Systems Methodology.” Also, as a chair of the Subcommittee on Handling of a Systematic Crisis, it is leading the research on global financial crises. 

The KDIC currently has MOUs on Information Sharing and Mutual Cooperation with eight deposit insurers worldwide. 

Sharing Its Expertise with Other Countries

Many developing countries have taken great interest in the economic success of Korea, which has undergone a great transition from an underdeveloped country to a donator nation in just a few decades. As the only non-G7 member of the G20, Korea strives to outreach to non-G20 countries, and choose the catchphrase “Shared Growth Beyond Crisis” for the Seoul Summit in November 2010.

The KDIC is ready to share the expertise it gained during its 15 year history. As part of such effort, the corporation recently launched the KDIC-Knowledge Sharing Program in conjunction with the KSP. As a first step, the KDIC has participated in the KSP’ s program to help a foreign government to implement a deposit insurance system, and hosted a training program on how to improve the deposit insurance system.