Between March 5 and 13, the Korea Deposit Insurance Corporation (KDIC) held seminars for the staff of 293 KDIC-insured financial institutions across the country to explain how it plans to differentiate deposit insurance premiums based on the risk profile of individual institutions.
Held in five places including Seoul, the seminar outlined what changes were being made to the risk assessment model - for example, change of indicators to improve the model’s predictive performance regarding a firm’s likelihood of failure - and explained planned measures aimed at encouraging sound business management in the financial industry, including a mock assessment in the first half of the year.
Improvements to the risk assessment model are intended to enhance its predictive performance regarding a firm’s likelihood of failure. Mock assessment results are shared to help firms proactively address weaknesses.
The risk assessments to determine risk-based premium rates are done only once a year after the end of each business year.
Starting this year, a mock assessment will be conducted in the first half and the results will be shared with financial institutions to help them understand where their weaknesses are and tackle them in advance of the formal assessment.
It is for reference by executive management teams. There will be no additional burden on financial firms to provide data for the mock assessment and the results of the mock assessment will have no bearing on the formal assessment. There will be comprehensive report for each financial institution.
Each institution will be provided with a full report describing how it performed on individual indicators, in comparison with the sector, and across several years, what its relative position (versus the competition) in the marketplace is, what its weaknesses are and what needs to be done to improve its risk grade and overall risk management. The objective is to give financial institutions a higher incentive to manage themselves in a safe and sound manner.
Korea Deposit Insurance Corp. (KDIC) is the South Korean government deposit insurance company which was established in 1996 under the Depositor Protection Act of Korea. KDIC ensures protection of depositors' funds and provides personal and corporate insurance services. Located in Seoul, they insure financial institutions such as banks, securities companies, insurance companies, merchant banks, mutual savings banks and Korea Federation of Savings Banks.
KDIC also works in close cooperation with other national agencies such as the Financial Supervisory service.
The Deposit Insurance Committee is the highest decision-making body of the KDIC, as such, it deliberates and renders decisions on key matters. It is composed of seven individuals including the President of the KDIC (Chairman), the Vice Chairman of the Financial Services Commission, the Vice Minister of the Ministry of Strategy and Finance and the Senior Deputy Governor of the Bank of Korea. The three remaining committee members are appointees commissioned directly by the Financial Services Commission and the other two are recommended by the Minister of the Ministry of Strategy and Finance and the Governor of the Bank of Korea.
The KDIC implements deposit insurance policies and manages funds, the funds in the KDIC are divided into the Deposit Insurance Fund Bond Redemption Fund and the (New) Deposit Insurance Fund (DIF). The Redemption Fund was established to complete the financial restructuring and recover public funds injected during the first and second rounds of financial assistance following the 1997 East Asian financial crisis.
The new DIF could start with a clean state from then, the annual premium revenue of the DIF in 2009 was 1.24 trillion won.