More than 98% of all deposits under 50 million won in the ‘protection limit’

Silicon Valley Bank (SVB) customers in the United States await their order to withdraw their deposits at SVB’s headquarters in Santa Clara, California, on the 13th (local time). random news

Even if a financial institution goes bankrupt, more than 98% of the total deposits are less than 50 million won, which is guaranteed by the government for principal and interest. There are claims that the deposit protection limit should be raised to 100 million won to reduce the possibility of a bank run (mass withdrawal of deposits), which directly led to the bankruptcy of Silicon Valley Bank (SVB) in the United States , but it is also counterargued that the current level can protect most of the depositors.

Representative Yoon Chang-hyun, a member of the National Assembly’s Political Affairs Committee, analyzed data from the Financial Services Commission on the 22nd and revealed that the percentage of depositors with less than 50 million won by the end of September last year. insured deposits in domestic financial companies were 98.1% of the total. An insured deposit is a deposit product that can guarantee up to 50 million earned per person per financial institution under the depositor protection system.

This means that even if a financial institution goes bankrupt, most of the depositors can be sure of the money they have been given.

By industry, banks accounted for 97.8% of the total, financial investment companies 99.7%, life insurance companies 94.7%, non-life insurance companies 99.5%, trade finance companies 94.6%, and savings banks 96.7%.

As of the end of September last year, the total insured deposits of domestic financial companies amounted to 2843 trillion won, and 287 financial companies were subject to protection. Compared to the end of 2021, insurance deposits increased by 89 trillion won, and three target financial companies were added.

The Democratic Party of Korea announced on the 21st that it would propose a depositor protection policy bill to increase the depositor protection limit from 50 million won to 100 million won, but the current deposit protection limit is regulated by the Presidential Decree of the Depositor Protection Act. .

Discussions on raising the deposit protection limit began in earnest from 2021. When the National Assembly amended the Depositor Protection Act in August of that year, it included a supplementary opinion to review the appropriate deposit rate and report on it to the government every six month. The Financial Services Commission and the Korea Deposit Insurance Corporation plan to come up with an improvement plan by August.

According to an interim report on a research service presented by the Financial Services Commission’s public-private taskforce (TF) to the National Assembly’s Political Affairs Committee in October last year, the side that the deposit protection limit should be raised says that CMC per capita has increased 2.7 times since 2001, when the current limit was set. It is said that the ratio of protection limits to GDP per capita has decreased from 3.4 times to 1.3 times over the same period. As the actual level of deposit protection has fallen, he argues that the protection limit should be increased in order to increase trust and safety throughout the financial system.

Those who say it is desirable to maintain the current level argue that most depositors can be protected at the current level, and if the limit is raised, the deposit insurance premium (anticipation fee) paid will from financial companies is increasing, leading. to an increase in the consumer burden. The deposit protection limit recommended by the International Monetary Fund (IMF) is one to two times GDP per capita. Current deposit rates are 0.08% for banks, 0.15% each for financial investment companies, insurance companies, and general finance companies, and 0.40% for mutual savings banks.

According to TF, consumers and experts are generally of the opinion that the deposit protection limit should be increased. The financial sector opposes a uniform ceiling increase, arguing that it should only be allowed in special circumstances such as a financial crisis.

Representative Yoon Chang-hyun said, “I agree with the direction of creating a safer financial protection network by increasing the deposit protection limit, but a sophisticated design is needed so that the increase in deposit fees does not lead to a burden interest on the common people. .”