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FSS to claw back insider savings bank withdrawals

The nation’s top financial watchdog said Wednesday that it will retrieve deposits withdrawn improperly at Busan Savings Bank right before the agency suspended its businesses.

The Financial Supervisory Service took the action a day after President Lee Myung-bak ordered a thorough probe into allegations that relatives and friends of employees at some savings banks withdrew deposits on the eve their operations were suspended in February.

Some account holders who knew about the coming suspension of Busan Savings Bank withdrew a total of 18.5 billion won ($17 million) after the bank closed for the day on Feb. 16, one day before the FSS suspended operations of the cash-strapped lender.

The watchdog has suspended eight savings banks since January due to growing exposure to soured loans from the construction industry.

“We decided to recover deposits that are found to have been improperly withdrawn from the seven suspended banks,” the FSS said. The watchdog dispatched an inspection team to some of the lenders. The probe will be widened to the rest soon, it said.

A total of 107.7 billion won in deposits was withdrawn from the seven banks.

“Deposits of those who withdrew money upon bank employees’ and major shareholders’ tip-offs will be subject to retrieval, along with money withdrawn by employees in violation of the real-name transaction law,” the FSS said.

The government is brainstorming how to restructure the secondary banking sector. One option is to allow commercial players to buy toxic assets held by the eight banks.

President Lee Myung-bak on Tuesday ordered a thorough investigation into allegations that employees of the ailing savings bank tipped off their relatives and big customers about the institution’s impending suspension so that they could withdraw their money in advance.

“We have to thoroughly investigate and deal sternly with this,” Lee said at a cabinet meeting, according to presidential spokeswoman Kim Hee-jung. “In addition, we have to make everything known to the people.”

(cynthiak@heraldcorp.com)

By Cynthia J. Kim
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