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SHARING DEPOSIT INSURANCE EXPERTISE WITH THE WORLD Member Profile Korea Deposit Insurance Corporation (KDIC) A Founding Member of IADI SHARING DEPOSIT INSURANCE EXPERTISE WITH THE WORLD Korea Deposit Insurance Corporation (KDIC) was established as a non- capital based special corporation in 1996 under the Deposit Protection Act. KDIC has continued to fulfill its role as an important pillar of Korea s financial safet y net by prot ect ing deposit ors and m aint aining t he stability of the financial system in Korea. Organization The KDIC is composed of 10 departments, 11 offices, and 1 regional office with six hundred thirty staff members. The Deposit Insurance Committee The Deposit Insurance Committee is the highest decision- making body of the KDIC. As such, the Deposit Insurance Committee deliberates and renders decisions on important matters including the following: o Est ablishm ent of basic guidelines for t he Corporat ion s operat ions o Review of operation plan for the Deposit Insurance Fund o Amendments to the Articles of Incorporation o Enactment, amendment and nullification of rules and regulations related to the Corporat ion s business obj ect ives o Matters related to the budget and to settlement of accounts o I ssuance of Deposit I nsurance Fund Bonds ( DI F Bonds ) and DI F Bond Repayment Fund Bonds o Reduction or postponement of deposit insurance premium payments o Actual and provisional payment of insurance claims o Approval of payment on estimated insurance claims o Financial support for Resolution Financial Institutions o Financial support for insured financial institutions Transactions between Funds, Payment of fees arising from outsourcing, operation of surplus funds, etc. SHARING DEPOSIT INSURANCE EXPERTISE WITH THE WORLD The Com m it t ee is com prised of nine individuals in all, including t he President of the KDIC, who serves as com m it t ee chairm an. Ot her m em bers are: t he vice m inist er of Finance and Econom y, t he vice m inist er of Planning and Budget , t he vice chairm an of t he Fin a n cia l Su pe r visor y Com m ission ( FSC ) , and t he deput y governor of t he Ba n k of Kor e a ( BOK ) . The four rem aining com m it t ee m em bers are appoint ees com m issioned by t he Minist er of Finance and Econom y. Of t hat num ber, one com m it t ee m em ber is com m issioned direct ly by t he Minister of Fina n ce a n d Econom y wit h t he rem ainder recom m ended by t he M in ist e r of Pla n n ing a n d Bu dge t , t he Chairm an of t he FSC, and t he Governor of t h e BOK - all of whom are each allowed t o recom m end one com m it t ee m em ber apiece. The recom m ended m em bers are t hen com m issioned by t he M in ist e r of Fina n ce a n d Economy. The Board of Directors SHARING DEPOSIT INSURANCE The Board of Directors, as the highest executive body of the KDIC, is comprised of WITH THE WORLD EXPERTISE one president, one vice president, and four executive directors. The audit or m ay express opinions at board m eet ings, but cannot part icipat e in t he Board s vot ing process. The president of KDIC is appoint ed by t he Pr e side n t of t h e Re pu blic of Kor e a on t he recom m endat ion of t he M in ist e r of Fina n ce a n d Economy. The vice president and execut ive direct ors are appoint ed by t he Minist er of Finance and Econom y on t he recom m endat ion of t he KD I C President . The audit or is appoint ed by t he Minist er of Finance and Econom y. Board m em bers are appoint ed for a period of t hree years and m ay be reappoint ed. The Board renders decisions on various matters including the following: o Matters that require deliberation and decision- making by the Policy Committee o Enactment, amendment and nullification of rules and regulations related to the operation of the Corporation o Mat t ers relat ed t o t he Corporat ion organizat ion and syst em o Matters related to the signing, notification and canceling of important contracts o Matters related to important court proceedings and arbitrations o Other matters that the President of the KDIC deems appropriate Overview of the Deposit Insurance System in Korea Following t he enact m ent of t he Deposit or Prot ect ion Act in Decem ber 1995, deposit insurance operations began on June 1, 1996, with the establishment of the KDIC. Alt hough it began as an ex- ant e syst em wit h a prot ect ion lim it of KRW 20 m illion for bank deposit ors, financial inst abilit y in t he wake of t he 1997 financial crisis gave rise t o a t em porary blanket coverage schem e. I n addit ion, t he deposit insurance coverage was ext ended t o bot h banks and non- bank financial inst it ut ions, such as m ut ual savings banks ( MSBs) , m erchant banks, securit ies com panies, insurance com panies, and credit unions. As a result , t his creat ed a single, com prehensive, and int egrat ed deposit insurance syst em designed t o enhance financial stability and to ensure public confidence. The system returned to a limited scheme in 2001 with a protection limit of KRW 50 million. This higher lim it was est ablished t o ensure sust ainable st abilit y in t he financial m arket . As t he syst em is not wit hout m oral hazard risk, t he KDIC closely m onit ors bot h financial and non- financial risks of t he insured financial inst it ut ions. Furtherm ore, t he KDIC has a dut y t o not only prot ect deposit ors, but also minimize loss of the Deposit Insurance Fund (DIF). Deposit Insurance Korea current ly im plem ent s a pa r t ia l de posit pr ot e ct ion syst e m pr ovidin g lim it e d cove r a ge up t o 5 0 m illion w on pe r de positor. The financial inst it ut ions eligible for prot ect ion under t he D e posit or Pr ot e ct ion Act ( D PA ) include six areas of business: banks, securities companies, insurance companies ( life and non- life insurance) , m erchant banks, m ut ual savings banks ( MSBs ) and credit unions ( unt il t he end of 2003) ; credit unions were excluded from coverage from January 2004. Insured Deposits and Institutions All financial inst it ut ions operat ing in Korea under licenses by t he Financial Supervisory Service and special banks, wit h t he except ion of t he Export - Import DEPOSIT INSURANCE SHARING Bank of Korea, are required t o be insured by t he KDIC. However, since 2004, t he WITH THE WORLD EXPERTISE KDI C does not cover credit unions. Also, individual agricult ural and fisheries cooperat ives current ly are not covered by KDI C. The nat ional federat ions of such cooperatives, however, are covered by the KDIC. Table 1. Number of Insured Financial Institutions (As of March, 2006) Domestic Foreign Total Banks 18 38 56 Securities Companies 38 13 51 Insurance Companies 29 14 43 Merchant Banks 2 0 2 Mutual Savings Banks 112 0 112 Total 199 65 264 Table 2. Types of Deposits Covered Per Each Financial Sector Demand Deposits, Time and Savings Deposits, Accumulative Banks Deposits, Principal- Covered Trusts and Secondary Bills Cash Balance of Securities Savings, Securities Companies Cash Balance of Collateral for Stock Loans on Margin Account Insurance Companies Individual Policies, Severance Benefits Policies Merchant Banks Notes Payables, Issued Notes, CMAs Ordinary Deposits, Savings Deposits, Time Deposits, Mutual Savings Banks Installment Deposits, Credit Installments, Cover Bills Financial Restructuring The governm ent - led financial rest ruct uring t hat has been ongoing since t he financial crisis in lat e 1997 has been carried out in t wo phases. The first phase dealt wit h financial indust ry rest ruct uring following t he financial crisis, and placed emphasis on the easing of the corporate sector credit crunch and the restoration of t he financial syst em . The second phase reform s were im plem ent ed wit h an em phasis placed on t wo aspect s: a hardware rest ruct uring t hrough early resolut ion of lat ent insolvencies and a soft ware rest ruct uring t hrough im provem ent of financial supervision and corporat e governance. I t was ult im at ely successful in reducing syst em ic risk t hrough t he resolut ion of non- viable financial inst it ut ions and t he inj ect ion of public funds int o viable ones, while rest oring financial int erm ediat ion t hrough t he resolut ion of accum ulat ed insolvencies. Effort s were also m ade t o st rengt hen financial indust ry soundness by est ablishing a SHARING supervisory syst em t hat com plies wit h int ernat ional st andards. I n consequence, DEPOSIT INSURANCE wit h t he easing of uncert aint ies in t he financial m arket , t he financial EXPERTISE WITH THE WORLD int erm ediat ion was rest ored and foundat ions for t he recovery of t he real econom y were laid. Failure Resolution The KDIC undertakes resolution of failed financial institutions through a variety of methods including liquidation, deposit payoffs, financial assistance via equity participation, contribution for acquisition of insolvent institutions, P&As and M&As. Recovery of Injected Funds For efficient recovery of public funds injected in respect of insolvent financial institutions, the KDIC can arrange for its staff to perform the duties of managers and bankruptcy administrators of such institutions. Also, the KDIC can be assigned the right to file for liability or damage claim litigation in subrogation of insolvent financial institutions. In terms of recovery of injected public funds, the KDIC utilizes a variety of methods, including but not limited to, sales of NPLs (non- performing loans), sales of equity through privatization and issuance of exchangeable bonds, block sales, M&As, etc. Furthermore, the KDIC has the authority to participate in receivership activities, such as sales of assets from failed financial institutions or settlements of claims. MOU Management The KD I C has t he aut horit y t o inj ect funds int o an ailing or insolvency t hreat ened financial inst it ut ion, t o help im prove t hat inst it ut ion s financial st at us. Wit h regards t o financial inst it ut ions t hat have signed m em orandum s of underst anding ( MOU) wit h t he KDIC t o receive such public funds, t he KDIC reserves t he right t o review and assess t heir m anagem ent perform ance and t ake corrective actions. Cooperation and Exchange with International Organizations To expand it s horizons in t he area of int ernat ional cooperat ion and exchange, t he KDIC has act ively part icipat ed in various int ernat ional event s as a m em ber of I n t e r na t ion a l Associa t ion of D e posit I n su r e r s and has t aken t he responsibilit ies of t he Vice Cha ir of Re se a r ch a n d Guida n ce Com m it t e e a n d the Chair of Advisory Group. Dong- Il Kim Dong Il Kim, Executive Director of KDIC, Vice Chair of RGC Executive Council member IADI SHARING DEPOSIT INSURANCE EXPERTISE WITH THE WORLD From 14 to 16 June 2006, KDIC held its International Open House Seoul at the KDIC headquarters in Seoul. The event commemorated the KDIC s t e n t h anniversary and shed light on the significant role it has played during and following the recovery from the financial crisis that hit most of Asia in 1997~98. More information on this event will be featured in the upcoming IADI Research Letter To become a trustworthy partner of the general public, the KDIC has strengthened its services to depositors by running the Customer Service Desk to serve the needs of customers effectively, and promptly informing them of inactive accounts and uncollected dividends to depositors. Meanwhile, the KDIC has built cooperative ties with farming and fishing villages to support the local rural communities by providing medical support for students with speech disorders and free meals to seniors which have no supporting families.
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