Authority and Function of
the Korea Deposit Insurance Corporation
Office of Legal Affairs
March 28, 2007
Jay Lee
jaylee@kdic.or.kr
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Table of Contents
Ⅰ. Overview of the Korea Deposit Insurance System
Ⅱ. Deposit Insurance
Ⅲ. Risk Surveillance
Ⅳ. Insolvency Resolution
Ⅴ. Collections
Ⅵ. Insolvency Investigation
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
Ⅰ. Overview of the Korea Deposit Insurance System
1. Approaches to Operation of a Deposit Insurance System
• Establishment of Authorized Managing Entities
• Commissioning of Existing Entities (eg: Governmental Body , Central Bank, etc)
• Forming New, Independent Regulatory Bodies through Enactment of Required
Regulations
• Structures of Authorized Managing Entities
• Operation by a Civilian Organization
• Operation by a Public Entity Sponsored by the Government
• Joint Operation by the Two above Entities
• KDIC : New Independent Government Entity
• Efficient Operation of the Deposit Insurance System
• Rapid Formation of the Deposit Insurance System
• Restructuring of the Financial Industry
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Ⅰ. Overview of the Korea Deposit Insurance System
2. Evolution of the Deposit Insurance System
Non-banking
Sector
Recognized the Need for Deposit Insurance Earlier than the
Banking Sector
- 1983, the Korea Non-bank Deposit Insurance Corporation for
Protecting Deposits with Mutual Savings Banks
- 1984, the National Credit Union Federation of Korea’s Safety Fund
for Protecting Deposits with Credit Unions
- 1989, the Insurance Guarantee Fund for Protecting Insurance
Premiums at Insurance Companies
Banking
Sector
Problems Precipitated by Favoritism and Implicit Industry
Protections (eg : Moral Hazards, Lack of Efficiency, Little
Competitiveness, etc)
Regulations Addressing these Problems, and Creating the KDIC,
Were Enacted in Dec 1995.
These Measures Have Helped to Stabilize the Korea Financial
System.
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
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Ⅰ. Overview of the Korea Deposit Insurance System
3. Establishment of the KDIC
The KDIC Is Founded Operations Are Extended to Non-banking
Deposit Insurance Funds
Dec 1995
Jun 1996
Jan 1997
2007, Present
Apr 1998
Integrated Deposit
Insurance Apparatus
Deposit Insurance Protection Management of Banking Deposit
Laws Are Enacted
Insurance Funds Commenced
<Status of Insured Financial Institutions Subject to the KDIC’s Protection>
(As of end of Dec. 2006)
Type
Domestic
Foreign
Total
Banks
17
36
53
Securities companies
39
14
53
Life insurance
14
8
22
Non-life insurance
15
6
21
Merchant banks
2
0
2
Mutual savings banks
110
0
110
Total
197
64
261
Insurance
companies
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
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Ⅰ. Overview of the Korea Deposit Insurance System
4. Organization and Structure of KDIC
The Depositor Protection Act Established the KDIC as a Zero-capital Corporation,
Ensuring Neutrality and Independence.
<Organizational Functions and Departments in Charge by Stage of Business Affairs>
Standard Operation
Resolution
Deposit Insurance
Fund Mgmt. & Planning Dept.
Office of Fund Operation
Office of Deposit Insurance Policy
Follow-up Management
Insolvency Resolution
Collections
Prompt Resolution Dept.
Resolution & Finance Corporation
Asset Mgmt. Dept.
Receivership & Collections Dept.
Risk Surveillance
Research Dept.
Risk Surveillance Dept. Ⅰ~Ⅱ
Ongoing Surveillance Team Ⅰ~Ⅴ
Insolvency Investigation
Investigation Dept.
Special Investigation Mission
<Deposit Insurance Committee : The Highest Decision-making Body>
•Purpose : Maintaining the Objectiveness & Neutrality of the Deposit Insurance System, Ensuring Fairness in the
Deposit Insurance System, Promoting Cooperation among related Organizations
•Functions : Deliberates and Decides on KDIC’s Major Affairs
•Members : ① Ex officio Members - President of KDIC, Deputy Minister of Finance & Economy, Deputy Minister of
Planning & Budget, Vice Chairman of the Financial Supervisory Commission, and Vice President of the
Bank of Korea ② Appointed Members - Nominated by the Presidents of Organizations with Ex officio
Members, and Having Ample Knowledge of Finance, Economy or Law
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Ⅰ. Overview of the Korea Deposit Insurance System
5. Roles of Participants in the Financial Safety Net
Government
Deposit Insurance Apparatus
 Provides Broad Regulations and
Serves as an Adjustor in Times of
Financial Crisis
 Protects Depositors against
Insolvencies, Reduces Insolvencies
through Oversight, and Manages Failed
FIs (Financial Institutions)
Assuring the
Safety of the
Financial
System
Financial Supervisory Authority
 Ensures the Soundness of Fls
Central Bank
 Encompasses a Lender of Last
Resort During Times of Financial
Crisis
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
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Ⅰ. Overview of the Korea Deposit Insurance System
6. Overview of KDIC’s Authority and Function
Deposit
Insurance
Insolvency
Resolution
Risk
Surveillance
Five Main Roles
of KDIC
Insolvency
Investigation
Collections
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Ⅱ. Deposit Insurance
1. Collection of Insurance Premiums
The KDIC Employs a Compulsory Deposit Insurance System,
which Means Deposits in Insured FIs Are Automatically Insured.
• Calculation of Insurance Premiums
- The KDIC Employs a Fixed-rate Premium System with a Set Rate for Each
Financial Sector.
<Premium Rate and Premium Income for Each Financial Sector>
Insured Financial Institution
Rate
Banks
Average balance of deposits, etc. × 0.1%
Securities Companies
Average balance of deposits, etc. × 0.2%
Insurance Companies,
Merchant Banks and MSBs
Average balance of deposits, etc. × 0.3%
 Because a Fixed-Rate System Does Not Reward Prudent Management, and Encourages
Excessive Risk-seeking, KDIC Is Collecting Additional Information on Insured Institutions
to Introduce a Risk-adjusted Differential Premium System.
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Ⅱ. Deposit Insurance
1. Collection of Insurance Premiums
• Premium Reduction and Premium Payment Postponement
• The KDIC May Reduce its Insurance Premiums and Late-Payment Charges to a Certain
Extent or Place the FI under a Moratorium for a Certain Period of Time, Based on a
Resolution by the Deposit Insurance Committee.
• If Such an Institution Fails to Pay Insurance Premiums by the Set Deadline, the KDIC May
Attempt to Force Payment by Levying Additional Late-Payment Charges.
• Representations to Depositors on Scope of Protection
• Insured FIs Should Represent the Details of Insured Deposits in Passbooks or Brochures,
as Determined by the KDIC according to Applicable Law.
• Any FI Breaching Said Obligation Is Subject to a Fine for Negligence.
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
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Ⅱ. Deposit Insurance
2. Payment of Insurance Claims
Scope & Maximum
Limit of Protection
 The Maximum Limit of Insurance Benefit Payment to Each
Depositor Remains at KRW 50Million (About USD 50,000)
※Protection Is Not Provided to Investment Products Such as Performance
-based Dividend Trusts or Beneficiary Certificates of Which Principal and
Profits Accrued on It Are Paid to Customers According to the Results of
Investment Management.
Withholding of
Insurance Benefit
Payment
 Regarding Persons Materially Associated with Insolvent
Institutions, or Persons or Depositors related to Such Persons,
the KDIC May Withhold Insurance Benefit Payment for a Period
of at Most Six Months from the Date of Public Announcement
of Commencing Payments.
Acquisition of
Claim Rights
 When the KDIC Pays Insurance Claims, It Acquires the Rights
of Depositors against the Relevant Failed FI.
Provisional
Payment
 The KDIC May Provide Partial Pre-payments, in order to
Conciliate Depositors during Time Consuming Bankruptcy
Proceedings.
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Ⅲ. Risk Surveillance
1. Process of Risk Surveillance
• Request for Submission of Materials
• The KDIC May Request Insured FIs, etc. to Submit Materials related to Their Business and
Property Status to the Extent Necessary to Perform Its Duties.
• Investigation into the Business or Property Status
• The KDIC May Conduct an Investigation into the Business or Property Status of Insured FI
in Cases Where It Is Determined They Are At Risk of Failure according to Defined
Standards, and Based on the Materials Submitted on Request.
• Requests to Financial Supervisory Service
• The KDIC May Request the Governor of the Financial Supervisory Service (FSS) to
Implement an Inspection of Insured FIs and to Forward Its Findings, or to Permit Joint
Participation by the KDIC Employees in the Inspection Carried out by FSS.
• The KDIC May Request the Governor of the FSS to Provide Materials Pertaining to Insured
FIs.
 If the KDIC Detects Any Problem in the Financial Viability of Insured FIs on the Basis of
the Diverse Data that It Collects through Said Authority, It May Designate Those
Institutions as Failed or Insolvency-threatened-Financial Institutions.
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
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Ⅲ. Risk Surveillance
2. Review of MOU Implementation
• Execution of an MOU
• When the KDIC Provides Financial Assistance, It Will Enter into an
MOU (Memorandum of Understanding) with the Insured FI concerned
for Implementation of Its Business Normalization Plan.
• Aim of Execution of Such MOU
• Execution of Such MOU Is Aimed at Blocking Any Waste of Public Funds by
Granting the KDIC the Authority to Request that Insured FIs Exert Selfrehabilitative Efforts, and to Assure that FIs Are Constantly Monitored and
Assisted, beyond Simple Financial Assistance.
• Review of MOU Implementation
• For the Purpose of Examining Implementation of the MOU, the KDIC May
Request Any Assisted Insured FIs to File a Report on Their Business or
Property Status or Submit Necessary Materials, or Request Their Related
Officers to Attend a Meeting and Make Statements.
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
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Ⅳ. Insolvency Resolution
1. Approaches to Resolution
KDIC’s Approaches to Resolutions of Failed Financial Institutions
Liquidation-type Resolution in Which the Relevant FI Is Dissolved according to
Bankruptcy Procedures after Payment of Deposit Insurance Claims.
Rehabilitation-type Resolution Whereby the FI Is to Renew Itself and Sell after
Financial Assistance Is Given.
One of These Approaches Will Be Selected, Depending on the Financial Structure of a
Failed Institution, Market Conditions, and other Aspects. In General, However, the
Rehabilitation-type Resolution Is the Preferred Method from the Perspective of Cost
Minimization and Depositor Protection.
Establishment
& Operation of
a Resolution FIs
If Deemed Necessary to Protect Depositors and Maintain Stability of the
Financial System, KDIC, with the Approval of the Minister of Finance &
Economy May Set up a FI that Conducts a Business Acquisition or P&A of
Failed FIs or Performs Affairs related to their Resolution
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Ⅳ. Insolvency Resolution
2. KDIC’s Participation in the Resolution System
• Appointment of a Management Supervisor
• When the FSC (Financial Supervisory Commission) Appoints a Management Supervisor
Based on Its Order to Completely Suspend an Insured FI’s Business or Its
Decision to Conduct P&A, It Shall Appoint an Officer or Employee of the KDIC
as Management Supervisor of the Institution.
• Appointment of a Liquidator or Trustee in Bankruptcy
• When an Insured FI to Which the KDIC Has Paid Insurance Claims or Provided Financial
Assistance is Dissolved or Goes Bankrupt, a Court May Appoint the KDIC or Officer or
Employee as a Liquidator or Trustee in Bankruptcy.
※ Before the So-called the IMF Bailout, Courts Made It a Practice to Appoint Attorneys-at-law
as Administrators in Performing Such Affairs as Management of a Liquidation/Bankruptcy Estate
of FI and Sale of Its Assets. With Amendment of the Depositor Protection Act, the KDIC or Its
Officer or Employee Who Has Expertise and Experience in the Financial Field Is Commissioned
to Carry out Matters Pertaining to Liquidation and Bankruptcy.
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Ⅴ. Collections
1. Recovery of Investments through Sale of Equities Held
Monetary Assistance that Took the Form of Investments Is Recovered
When the Equities in the Relevant FIs Are Sold.
• Pursuit of Sales to Maximize Recovery
• In the Event of Equity Sale, the KDIC Seeks to Maximize Recoveries.
• At the Same Time, the KDIC Flexibly Determines the Timing and Method of Sale
Considering Market Conditions, Share Characteristics and Possible Contribution
to the Development of the Domestic Financial Industry.
• Enhancement of Sale Transparency
• Sale of Equities Held by the KDIC (Its Conditions, Procedures, Methods and so on)
Is Determined by a Resolution of a Committee Comprised of Officials of the
Government Other than the KDIC, Outside Economic Experts and Legal Experts.
• The Committee Remains Involved in a Cautious, In-depth Discussion of the Sale
Process under Transparent and Fair procedures and thus Minimizes the Burden
Imposed on the Public.
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
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Ⅴ. Collections
2. Recovery through Participation in Bankruptcy Process
Financial Assistance that the KDIC Provided by Paying Deposits
(Insurance Claims) Is Recovered When It Collects Bankruptcy Awards
by Participating in the Relevant Failed FI’s Bankruptcy Proceedings.
• The KDIC Endeavors to Maximize Its Recoveries by Directly Involving
Itself in Managing the Bankruptcy Estate of the Failed FI in the Capacity
of a Trustee in Bankruptcy.
• The KDIC Minimizes the Operating Costs such
as Wage, Administrative Expense by
Consolidating Offices of Bankruptcy Estates
• Joint Public Sales of Assets of Bankruptcy
Estates Are Pursued to Increase the Efficiency
of Sales
Through Expeditious Completion
of Bankruptcy Proceedings,
the KDIC Promotes to Maximize
the Recovery of Public Funds.
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
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Ⅴ. Collections
3. Recovery through Sale of Assets
When Monetary Assistance is Offered by Means of Purchasing the
Assets of an FI, the KDIC Makes Recoveries by Selling Those Assets.
• When Restructuring a Failing FI, the KDIC Acquires
Assets Directly or Indirectly through a Resolution
FI and Sells Them by Employing Diverse
Approaches According to Their Characteristics.
※ In Particular, Non-performing Loans that Make Up the Bulk
of Acquired Assets Are Disposed of by Such Means as Sale
through ABS Issuance and Direct Sale
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
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Ⅵ. Insolvency Investigation
1. Investigation into Accountability for Failure
Preliminary
Investigation
On-site
Investigation
Collect the KDIC’s
Inside Information
Gather Information
Verify the Facts
Secure Evidence
Q&A
Provide Opportunities
for the Alleged to
Make Statements
Actions
Actions that Have Caused Losses to the Institutions by
Violation of Laws or Regulations
Targets
In Principle, Executives, Majority Shareholders, and Staff
Held Accountable Only for Improper Actions
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
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Ⅵ. Insolvency Investigation
2. Request Compensation for Damages against
Insolvency-related Persons
What Is Done after the Investigation of the Failed FIs ?
1. Notify the Result of Investigation
and Request the Claim
KDIC
2. File Suit against
Relevant Personnel
Poorly-run FIs
Court
(Trustees)
4.Recovery by
Disposal of Individuals’ Assets
3. Win the Suit
5. Take over the Claim Right of Mismanaged
FI Refusing to Conduct Loss Compensation Claim
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
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Ⅵ. Insolvency Investigation
3. Asset Investigation
General Asset
Investigation
Special Asset
Investigation
 In Order to Secure Liable Assets of People Responsible for Poor
Management, Conduct Investigation on General Assets Using Asset
Information Held by Administrative and Public Institutions
 Investigation into Financial Assets Concealed under Someone Else’s
Name or Real Estate Property Transferred to a Third Party through
Donation or Sales.
 It is Possible to Have Access to the Insolvency-related Persons’
Account with Comprehensive Authority of Inquiry regarding an
Account under Certain Restriction
<Concealed Property Report Center>
• Established in May 2002 to Investigate and Redeem Concealed assets (both domestic and
abroad) of those accountable for financial misconducts
• As of the end of Dec 2006, 82 Cases Totaling 185 Million USD Have Been Reported. Among
these 31 Cases Totaling 54 Million USD, which Are Regarded as Having Actual Value, Are Being
Addressed for Recovery.
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
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Thank You Very Much
for Your Kind Attention!
21C
KDIC
Tomorrow
Targeted Fund System
Differential Premium System
Today
Deposit Insurance System in Both Banking & Non-banking Sectors
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007