President Wi Sung-baek of Korea Deposit Insurance Corp.(KDIC)

Korea Deposit Insurance Corporation operates as a deposit insurer that prevents insured financial institutions from being unable to meet their deposit obligations.

It collects insurance premiums from insured financial institutions during normal times, sets up a fund, and in case of a failure, makes deposit payouts on behalf of the insured financial institution.

The institution offers services in the areas of management of deposit insurance funds, risk management, resolution of insolvent financial institutions, management of bankruptcy estates, and insolvency-related investigations.

It serves banks, investment traders and brokers, life insurance companies, non-life insurance companies, merchant banks, mutual savings banks, and credit unions in South Korea. The institution was founded in 1996 and is headquartered in Seoul, South Korea.

KDIC’s funds have separate accounts for banks, investment traders and brokers, life insurance companies, non-life insurance companies, merchant banks, mutual savings banks and credit unions (only in the case of the Deposit Insurance Fund Bond Redemption Fund). These accounts are managed separately.

Though between-account transactions within the same fund are allowed, transactions between the Deposit Insurance Fund and the Deposit Insurance Fund Bond Redemption Fund are prohibited.

Under the Public Fund Redemption Plan announced by the government in 2002, it was decided that assets and liabilities related to financial restructuring would be separated from the Deposit Insurance Fund (DIF) on January 1, 2003 to set up a new fund called the DIF Bond Redemption Fund.

The DIF Bond Redemption Fund is used for completing the financial restructuring process and recovering related public funds. It was also decided that the DIF would be funded with insurance premiums paid after 2003 to deal with insurance contingencies that occur after 2003.

Special assessments are the contributions mandated by law that insured financial institutions are required to pay for 25 years from 2003 to 2027 in accordance with the Public Fund Redemption Plan to repay the public fund assistance they received for financial restructuring.

Insured financial institutions should annually pay to the KDIC the amount of money obtained by multiplying the balance of their deposits, etc. (in the case of insurance companies, the amount of money determined by the Presidential Decree in consideration of the liability reserves under Article 120 of the Insurance Business Act) by such rate as determined by the Presidential Decree within the limit of 3/1,000 (If the amount is less than KRW 100,000, they should pay KRW 100,000 instead.) The Deposit Insurance Fund Bond Redemption Fund is preferentially invested in bonds, such as government/public bonds within the scope where stability, profitability, and liquidity are guaranteed.

The purchased bonds, in principle, are held until maturity. To maintain the stability of the funds, investment in performance-based products, with no principal guarantee, is prohibited, while investment in MMF beneficiary certificates of investment pools for public funds is allowed.

There are pre-determined percentages for investment in each of the above categories - bonds, MMF beneficiary certificates of investment pools for public funds and deposits. However, the percentages can be adjusted to a certain degree so that the funds are managed flexibly to cope with unexpected market conditions.

A view of the building where KDIC has its offices in Seoul. (Photos: KDIC)