The Korea Herald

ssg
지나쌤

Parties near deal on savings bank losses

By

Published : Aug. 9, 2011 - 19:31

    • Link copied

Government opposes plan to compensate depositors beyond statutory limit


Lawmakers from rival political parties are pushing to fully compensate the financial losses of depositors at nine savings banks that collapsed this year, stirring another round of controversy over populism.

Representatives of the ruling Grand National Party and the main opposition Democratic Party reached a tentative agreement on the compensation plan and were currently working out the details, party officials said Tuesday.

Their plan, according to them, calls for the government to set aside 200 billion won ($184 million) to pay in full all deposits at Busan Mutual Savings Bank and eight other savings banks that collapsed this year, beyond the insured amount of 50 million won. Investors who purchased subordinated notes in those banks would also be able to get their money back. 
Rep. Ooh Che-chang of the main opposition Democratic Party speaks at a meeting with the ruling Grand National Party’s representatives on measures to help depositors at nine savings banks that became insolvent this year at the National Assembly in Yeouido, Seoul, Tuesday. (Yonhap News) Rep. Ooh Che-chang of the main opposition Democratic Party speaks at a meeting with the ruling Grand National Party’s representatives on measures to help depositors at nine savings banks that became insolvent this year at the National Assembly in Yeouido, Seoul, Tuesday. (Yonhap News)

The move comes as nearly 37,500 customers of the banks stand to lose their savings and investments that exceed the legally guaranteed 50 million won.

Rep. Ooh Che-chang of the DP said: “More than 90 percent of the victims have deposits not exceeding 200 million won. They are just ordinary Koreans (and not rich people).” He said the measure intends to fully compensate their damages.

Those with deposits of between 200 million and 300 million won will be compensated with 90 percent of their deposits, while those holding more than 300 million won will be paid 80 percent, he said.

With the 200 billion fund, some 70 percent of the depositors’ losses will be compensated. The rest 30 percent would be covered later with proceeds from the planned sales of the failed institutions.

The move, however, was immediately met with opposition from the government, as it runs counter to the current law on deposit insurance.

Currently, deposits are only partially protected by the state-run deposit insurance scheme, with the limit being 50 million won per person. Holders of subordinated bonds are not covered at all. The current law intends to protect financial stability in case of a bank failure, but provides only partial protection, not full, to prevent moral hazard.

The lawmakers are considering formulating a special law to make an exception to the current law and allow compensation beyond that limit for the customers of the nine banks.

“There is no reason the customers of the savings banks should be better protected than customers of commercial banks or other financial institutions,” a Finance Ministry official said. It will set a bad precedent, he added.

The plan also drew criticism from those in the political circles.

“The rival parties have lost their senses. To appease voters, they are promising everything for free, not thinking about the fiscal conditions,” Rep. Lee Han-koo of the ruling GNP said on a radio program.

Politicians across the country’s conservative and liberal spectrum have been competing to woo voters with populist pledges, ahead of general and presidential elections next year.

Customers of Busan Mutual Savings Bank, the industry’s largest, have been staging a rally for three months, demanding full compensation for their losses.

By Lee Sun-young (milaya@heraldcorp.com)