Yoo Jae-hoon, chairman and president of the Korea Deposit Insurance Corp. (KDIC), speaks during a press conference at the Korea Press Center in Seoul, Monday. Courtesy of KDIC

Yoo Jae-hoon, chairman and president of the Korea Deposit Insurance Corp. (KDIC), urged the National Assembly to work to promptly introduce the financial stability account, which was shelved during the previous Assembly.

A financial stability account is a policy that utilizes funds within the KDIC to proactively provide financial support to institutions facing temporary difficulties during a liquidity crisis.

The financial authorities and the state-run agency have been working to persuade the Assembly to introduce the account, but some opposition lawmakers have advocated a cautious approach, claiming that the Financial Services Commission (FSC) should take the oversight role for the system.

During a year-end press conference in Seoul, Yoo said many advanced countries around the world have operated such a system for over a decade, and Korea also temporarily implemented a similar system during the financial crisis of 2008.

“It is not new to us but an essential measure,” Yoo said.

The KDIC chief underscored that just because the nation is not currently in a financial crisis does not mean the need for the account has diminished.

“Considering Korea's geopolitical role, international dynamics and the recent economic and financial environment, I believe the introduction of this system is more crucial than ever. Preparing for an unforeseen crisis by implementing the account now is a more stable approach. This would ensure its availability for immediate use during an urgent crisis,” he said.

He vowed to thoroughly review technical concerns regarding the introduction of the system in collaboration with related government agencies.

FSC Chairman Kim Byoung-hwan made a similar argument during an Assembly audit on Oct. 24. He said that although the financial market in Korea is currently not unstable enough to require the introduction of the account, it is precisely when the market is stable that the system should be implemented.

Regarding the recent agreement between the ruling and opposition parties to raise the deposit protection limit to 100 million won ($71,700), Yoo said the remaining issue is determining the specifics of its implementation. He vowed to carefully consider the pros and cons of different alternatives and practical measures to implement an optimal solution.

“In order to address any concerns or negative impacts regarding the increase in the deposit protection limit, I will provide a detailed explanation going forward,” he said.

Based on the Nov. 13 agreement between the rival parties, the amendment to the Depositor Protection Act, which raises the deposit protection limit from the current 50 million won to 100 million won, is expected to be passed at the Assembly plenary session as early as Nov. 28.

The deposit protection system ensures that the KDIC protects a specific amount of both principal and interest for individual depositors in the event of a financial institution's bankruptcy. The limit, initially set at 50 million won in 2001, considering the per capita GDP at the time, has remained unchanged for 24 years, and now it is set to double.

If this limit is raised, it will be inevitable to increase the insurance premiums collected by the KDIC from financial institutions, which fund the deposit insurance system. As the amount of deposit insurance payouts in case of a crisis will increase, the KDIC will need to collect higher premiums from financial institutions to expand the fund.

Yoo highlighted the role of his agency, promising to focus on stabilizing the financial market and protecting the vulnerable in the new and challenging environment.

“Globally, there are many non-deposit financial products in addition to deposits. We will continuously monitor whether there are any loopholes or blind spots within the scope of protection provided, and ensure that no person suffers losses as a result,” Yoo said.

He also unveiled plans to strengthen the KDIC's preparedness in the securities and insurance sectors as much as in the deposit sector.