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

The Korea Deposit Insurance Corporation (KDIC) is a deposit insurance corporation established in 1996 to protect depositors and maintain the stability of the financial system. The main functions of KDIC are insurance management, risk surveillance, resolution, recovery, and investigation.

The Depositor Protection Act was enacted on Dec. 29, 1995, and the KDIC established on June 1, 1996. The KDIC began its operations as a deposit insurer on Jan. 1, 1997. The first deposit insurance premiums on April 30 that year.

The first Deposit Insurance Fund Bond was issued on January 3, 1998, and on April 01 deposit insurance funds were consolidated under the management of the KDIC. The Resolution Finance Corporation (RFC) was established on Dec. 27, 1999.

The 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 East Asian financial crisis. The new DIF could start with a clean state from then. The annual premium revenue of the DIF in 2009 was 1.24 trillion won.

Ongoing risk surveillance

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.

Support of insolvent financial institutions

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.

Resolution of failed financial institution

The KDIC resolves a failed financial institution in the least costly manner. Employing a variety of measures from deposit payoff, to purchase & assumption, to the establishment of a bridge bank and to an open bank assistance, the KDIC tries to make the resolution process as orderly and timely as possible. The total number of insured institutions stood at 320, and the amount of insured deposits totaled 2,037,830 billion won. (Figures as of June 2009) The coverage limit is 50 million won, which is almost $45,000, including the principal and interest.
Recovery of public funds

For efficient recovery of public funds injected in insolvent financial institutions, the KDIC can have its staff act as a manager or a trustee of such institutions. Also, the KDIC has the authority to file a liability suit or a damage claim on behalf of insolvent financial institutions.

Investigations

The KDIC pursues liability claims against former/incumbent employees of insolvent financial institutions for their role in the failure. It also conducts investigations of owners, employees, etc. of default debtor corporations who failed to pay back the money they owed and thus are partially responsible for the insolvency. In addition, the KDIC conducts thorough investigations of concealed properties of insolvency-implicated parties to secure the assets for damage claims against them.

The 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.

A view of the KDIC building in Seoul. (Photos: KDIC)