The nation’s chief financial regulator on Monday strived to calm jitters among savings banks’ clients amid the growing fears of a bank run.
Financial Services Commission Chairman Kim Seok-dong called them to refrain from withdrawing their deposits, which would make more banks face business suspension.
His remarks came after a great number of depositors pulled out their cash from the secondary financial companies, while the FSC has halted operations of seven savings banks since mid-January.
“Unless there is a massive withdrawal of deposits (in the near future), I’d clearly say that there would be no more suspensions during the first half of the year,” Kim told reporters during his visit to Busan on the day.
A crowd of clients gathers in front of a savings bank in Busan on Monday. (Yonhap News)
He said the additional suspension of the four savings banks last Saturday after the same action against two players only two days earlier was inevitable due to a drain-out of deposits.
Kim previously said there would be no more suspensions after unveiling future plans right after suspending the business of two distressed savings banks on Thursday. But he failed to keep his word.
The nation’s largest savings bank, Busan Savings Bank, and its several subsidiaries were suspended last Thursday and Saturday, and Kim visited the port city where angry customers severely criticize the FSC’s policies and reversial of stance in only two days.
But he did not rule out a possibility of halting several more players according to the coming situation.
He commented on Woolee Savings Bank headquartered in Busan, saying, “If the company will see heavy withdrawal of deposits, we may suspend its operations.”
Though he stressed that Woolee is not in a situation to face suspension at the present stage, he added, “Should the pulling-out become serious, the financial authority will have no choice (but to take necessary action).”
He also said the authority plans to buy about 3.5 trillion won ($3.14 billion) in bad real estate project loans held by savings banks through the state debt-clearer, the Korea Asset Management Corp.
Meanwhile, the FSC pledged that it would start partially repaying deposits of customers of the suspended savings banks a week earlier than usual.
Despite the chief regulator’s confirmation, tens of hundreds of Woolee customers demanded their deposits in front of the bank in Busanjin Ward.
Over the past few weeks, customers of 10 debt-ridden savings banks in Busan and other southern regions have withdrawn more than 10 billion won a day, respectively, on average.
The stern regulatory action against the secondary banking sector is raising the chances of a bank run under which a great number of customers withdraw most of their deposits.
If more and more savings banks see their depositors exit, many of them could face a liquidity crisis and additional business suspension.
By Kim Yon-se (firstname.lastname@example.org