Transcript PowerPoint Template

2010 IADI ARC Conference
Arusha, Tanzania
Deposit Insurance System in Korea &
Actions in Response to the Global
Financial Crisis
July 29, 2010
Yangig Cho
(Team Leader of Korea Deposit Insurance Corporation)
(Leopards on Kilimanjaro)
Executive Summary
 Korea, as an SOE (small open economy), has
achieved the fastest industrialization since 1960's
 Over the last decade and a half, Korea has
experienced two financial crises in 1997 and in 2008
 Korea successfully managed the crises thanks to
efficient Financial Safety Net (FSN) including the
Deposit Insurance System (DIS)
(Coat of arms of Tanzania)
2
Agenda
I.
Deposit Insurance System in Korea
II.
Impact of Global Financial Crisis on Korean
Economy
III. Actions in Response to the Global Financial Crisis
IV. Lessons Learned
(The flag of Tanzania)
3
I-1. Components of the Financial Safety Net
MoSF
FSC
BOK
(Fiscal /Foreign
Currency Policy)
(Financial
Policy)
(Monetary
Policy)
KDIC
KDIC
(Deposit
Protection
(Deposit
Protection
Resolution)
&&
Resolution)
FSS
FSS
(Financial
(Financial
Supervision)
Supervision)
KAMCO
KAMCO
(NPL
Cleanup)
(NPL
Cleanup)
* MoSF : Ministry of Strategy and Finance
FSC : Financial Services Commission
BOK : Bank of Korea
FSS : Financial Supervisory Service
KAMCO : Korea Asset Management Corporation
4
I-2. Cooperation within the FSN
FSC
BOK
KDIC
Financial
Services
Commission
Monetary
Policy
Committee
Deposit
Insurance
Committee
•Chair & Vice Chairperson
•Vice Minister of MoSF
•Senior Deputy Governor
of BOK
•President of KDIC
•Governor of FSS
•Two experts
recommended by FSC
and KCCI
•Governor & Senior Deputy
Governor of BOK
•Five experts recommended
by BOK, MoSF, FSC,
KFB, and KCCI
•President of KDIC
•Vice Minister of MoSF
•Senior Deputy
Governor of BOK
•Vice Chairperson of FSC
•Three experts
recommended by FSC,
MoSF, and BOK
Cross participation through joint committees, financial
information sharing, joint investigation, etc.
* KCCI : Korea Chamber of Commerce and Industry
KFB : Korea Federation of Banks
5
I-3. Introduction of the KDIC
 Establishment in 1996
 Integrated deposit insurer since 1998
 Highest decision-making body :
Deposit insurance committee
Coverage Sectors (6 sectors)
 Banks, financial investment
companies, life and non-life
insurance companies, merchant
banks, mutual savings banks
 321 FIs
 Total amount of insured deposits
1,001 tr won ($864 bn.)
 Coverage Limit
 50 mil. won($43,178)
* 2.2 times of GDP Per Capita($19,690)
 Insured Depository Products
Insured
Non-insured
Bank deposits,
customer’s deposit of
securities trade
account, individual
insurance policies, etc.
CDs, RPs, Securities,
CPs, etc.
* Excluding deposits by government and insured FIs, etc.
 DI Premiums Rate
(%)
Banks
Fin.
Invest.
Ins.
Co.
Merch.
Banks
MSBs
0.08
0.15
0.15
0.15
0.35
(As of Dec. 31, 2009; KRW/USD=1,158)
6
I-4. Major Functions of the KDIC
Identify troubled FIs through on and off-site
monitoring and request FIs or supervisory
authorities to take appropriate actions for
preventing failure
Deposit insurance policies /
Management of the Deposit
Insurance Fund
Ongoing
Risk Surveillance
Policy & Fund
Management
KDIC
Investigation
Investigate persons accountable
for insolvency of FIs to file a civil
damage suit against them
Number of staff : 577
(including 7 executive directors)
Recovery
Recovers funds injected into the
resolution of failed institutions by
receiving bankruptcy dividends or by
monetization of assets (eg. Shares)
Resolution
In the event of failure, KDIC not only
resolves the troubled FIs in an orderly
and timely manner through various
methods such as OBA, P&A, liquidation,
etc., but also provides insurance
coverage to depositors
7
I-5. Progress of Financial Restructuring in Korea
(Number of transactions, 1997-2008)
Resolution Type
Banks
Insurance
Co.
Securities
Co.
Merchant
Banks
Credit
Union
MSBs
Total
Disposal
1
1
3
0
0
0
5
Merger
6
6
0
5
0
0
17
Nationalization
8
3
0
0
0
0
11
Subtotal
15
10
3
5
0
0
33
P&A
5
10
0
22
30
0
67
Bridge Bank
0
0
0
0
11
0
11
Deposit payoff
0
0
4
0
71
327
402
Subtotal
5
10
4
22
112
327
480
20
20
7
27
112
327
513
OBA
Closure
Total
1)
2)
3)
4)
OBA : Open Bank Assistance
MSB : Mutual Savings Bank
Credit Union : excluded from insurance coverage from 2004
Including only FIs to which public funds were injected from KDIC or KAMCO
(Source: Public Fund Oversight Committee)
In order to minimize loss to Deposit Insurance Fund, KDIC
adopts various resolution schemes such as OBA, P&A, and
bridge bank, in addition to deposit payoff
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Agenda
II. Impact of Global Financial Crisis on Korean
Economy
(The flag of Tanzania)
9
II-1. Transmission of Financial Crisis
Crisis in
Developed
Countries
Impact on Emerging Market
Equity,
Bond
Market
Deleveraging
Credit Crunch
Financial
Path
Confidence Crisis
Foreign
Currency
Market
Psychological
Path
Economic
Slowdown
Real Economy
Path
Foreign capital outflow,
Increased credit risk
→ plummeted equity and bond
price, increased risk premium
Worsened conditions
for foreign borrowing
→ foreign currency shortage,
soaring exchange rate
and CDS premium
Export
Rapid Inventory adjustment
Export financing contraction
→ Sharp drop in export
Domestic
Demand
Consumption and investment
Sentiment shrinking
→ decrease in domestic demand
SOEs are inherently vulnerable to global financial crisis
development
(Source : Korea Development Institute)
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II-2. Impact on Korean Economy
Sudden
Reversal of
Capital Flows
Concern over
Credit Crunch,
Foreign Currency Shortage
Sharp Drop
in Export
Concern over
Economic Recession
• Dependence on trade : 90.5% (trade/GDP, 2006-2008) * G7 average of trade/GDP: 56.1%
• Share of foreign-investor-owned stocks in total market capitalization : 30.9% (Dec.’07)
Korean economy, open and highly integrated to global
market, was hit hard by recent crisis
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II-3. Reversal of Capital Flows
($ bn.)
Jan. 95
Nov.97- Mar.98
Apr.98
Sep.08 - Dec.08
Jan.09
- Oct.10
Asian
- Aug.08
Global
- Apr.10
Financial Crisis 2)
Financial crisis 2)
Amount
781
△214
2,219
△695
816
Equity
134
21
8
△74
366
Bond
386
△16
1,238
△134
310
S.T. Borrowing 1)
261
△220
973
△487
140
1) S.T. Borrowing : short-term borrowing due in less than 1 year
2) “Crisis” means a period in which the capital account recorded deficits in succession.
Resulting from the deleveraging process, foreign
capital suddenly began to outflow during the crises
12
II-4. Tighter Domestic Financial Conditions
41.9%
32.4%
1
4
2008
7
10
1
2009
4
7
10
1
4
2010
1
4
2008
7
10
1
2009
4
7
10
1
4
2010
13
II-5. Sharp Drop in Export and GDP Growth
 Export Volume
 GDP Growth Rate (YoY)
 Monthly : -43.6% (b/w Sep.’08 and Jan.’09)
 5.1% (’07) → 2.3% (’08) → 0.2% (’09)
 Compared to the same period a year ago :
-25.2% (1Q ’09)
45
Monthly Export Volume
($ bn.)
40 36.6 37.4 37.1
35
30
25
28.8
27.1
25.4
27.9
30.3
35.0 34.0
32.6 32.0
28.1
29.0
21.1
20
15
10
5
0
Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
2009
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Agenda
III. Actions in Response to the Global Financial
Crisis
(The flag of Tanzania)
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III-1. Measures Following the Lehman Bankruptcy
Measures
Initial –
Stabilizing
F/X
market
Actual
Government’ s payment guarantee for
foreign currency borrowings by
domestic banks
$100 bn.
(3 years)
$1.3bn.
Currency swap lines with U.S., Japan,
and China
$30 bn. (U.S.),
$20 bn. (Japan),
180 RMB bn. (China)
$16.4 bn.
(U.S.)
Foreign liquidity provision to banks
$50 bn.
$26.8 bn.
Midterm – Fiscal stimulus package1)
Boosting real
economy
Policy rate3) cut
1)
2)
3)
Commitment
7% of GDP2)
Tax Cuts
Public Spending
$57.9 bn.
$28.8 bn.
$29.1 bn.
5.25% (Aug.’08) → … → 2.0% (Feb.’09)
For the period of 2008 to 2012
$832.9 bn. in 2009
BOK Base Rate : reference rate applied in transactions such as RP
Initial and midterm measures were executed promptly and preemptively
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III-2. FSC – Stabilization of Financial Market
Improve asset
soundness of FIs
Preemptive recapitalization measures
Restructuring
Fund
(KAMCO)
Bank
Recapitalization
Fund
Acquiring NPLs
Recapitalization
Non-Bank FIs
Banks
Financial
Stabilization
Fund (KoFC)
Recapitalization, etc.
(Equity, loan, guarantee, etc)
Non-Bank FIs
Normal
Insolvent
Resolution of
Insolvent FIs
Deposit
Insurance Fund
(KDIC)
Public-private joint measures enhanced soundness of capital & assets
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III-3. FSC - Strong Regulation over Mortgage Lending
Trend of Housing Prices
 LTV, DTI Regulation was
adjusted according to
changes in housing price

LTV(Bank) : 60% (Apr.’03) → 40% (Apr.’05)
* U.S. 76.60%, Japan 70~80%, UK 70% (2008)

DTI(Bank) : 40% (Mar.’06, Special zone)
→ 40% (Nov.’06, All cities)
•LTV : Mortgage Loan to Value (official value of house or APT) ratio
•DTI : Monthly Debt Burden of Mortgage To Monthly Income ratio
 Loan-to-deposit ratio (excluding
CD) ≤ 1 (grace period until 2014)
Korean housing price remained
stable relative to international
market
Proactive control of asset bubbles and excessive asset growth were
the factors most critical to overcoming the recent crisis
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III-4. KDIC’s Role in Crisis Management – 1997 Crisis
Actions
Blanket Coverage
Coverage Expansion
Integrated DIS
Financial Restructuring
(513 resolved ’97-’08)
Outcomes
Results
Preventing Bankrun
Boosting Financial
Competitiveness
Restoring Real
Economy
Improving Foreign
Confidence
1997
2007
BIS ratio
7.04%
11.94%
NPL
(ratio)
$31.6 bn.
(6.70%)
$5 bn.
(0.64%)
ROA
-1.06%
1.08%
ROE
-14.18%
16.17%
 In 1997, F/X and financial crisis arose from weak fundamentals
both in the sector of corporates and FIs
 KDIC’s decisive response was crucial to overcome the crisis
19
III-5. KDIC’s Role in Crisis Management – Recent Crisis
 Public have a strong confidence in DIS from ’97 experience
 KDIC provides perfect protection for depositors during emergencies
 KDIC has a well equipped system for resolving failed Fis
 KDIC established contingency plan in preparation for
possible crisis
Sign of
Crisis
Beginning
of Crisis
Partial
Protection
→
Deepening
of Crisis
Blanket
Coverage
→
Expansion
of Covered
Products
KDIC was prepared for another crisis
20
III-5. KDIC’s Role in Crisis Management – Recent Crisis
 Only 5 mutual savings banks failed during the recent
crisis (2008-2009)
 No sign of bankrun

Partial protection scheme was maintained
 Foreign-currency deposits were newly insured
(Nov. 3, 2008~)
KDIC’s role was limited to minimum ; standby for action
21
Agenda
IV. Lessons Learned
(The flag of Tanzania)
22
IV-1. Key Success Factors for SOE
Korea as an SOE
• has been highly vulnerable to the fluctuations of the global economy
and the consequent capital flows
• has nevertheless successfully avoided the damage from recent
crisis based upon following lessons;
1. Prompt and preemptive response
2. Prudent management of financial
sector soundness
 Coordination among relevant ministries to
promptly prepare countermeasures in key
areas :
 Tight LTV/DTI regulation to maintain total
loan delinquency rate at a stable 1% level
 Support banks to raise BIS ratios through
F/X liquidity, Fiscal Stimulus Package, Policy
a variety of recapitalization programs
rate cut, etc.
 Purchase of troubled assets improved the
asset soundness of banks
 Conveyed accurate and detailed information
to investors to avoid misunderstanding and
 Possibility of massive bank defaults are
restore market confidence
minimized by maintaining high quality of
loans and low growth of assets
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IV-1. Key Success Factors for SOE
3. Strong Fiscal Position of the
Korean Government
4. Lessons and Experience
from ’97 Asian Financial Crisis
 Relatively low level of public debt  Timely response with manuals
enabled a large-scale stimulus
package when necessary
- Institutional framework
(e.g., KDIC and KAMCO)
- Legal framework (e.g., Act on
the Structural Improvement of the
Financial Industry, Consolidated
Insolvency Act, and Corporate
Restructuring Promotion Act)
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Korea’s Knowledge Sharing Program(KSP)
 An Official Development Assistance (ODA) offered by Korean govt.

A comprehensive policy consultation program to share Korea’s development
experience
- Together with experts from govt., research inst., international organization

Consulting area selected upon discussion
- Economic development strategy
- Industrialization and export promotion
- Economic crisis management
- Human resources development

17 countries participated in KSP (2004-2010)
* Please visit http://www.ksp.go.kr/ for more information.
KDIC is willing to facilitate application for KSP
25
Thank You!
Email : [email protected]
Phone : 82-2-758-1122
Fax
: 82-2-758-1120
(Kibo summit of Kilimanjaro)