Transcript Authority Function of KDIC
Authority and Function of the Korea Deposit Insurance Corporation
Office of Legal Affairs March 28, 2007 Jay Lee
[email protected]
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 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
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 Apr 1998
Deposit Insurance Protection Management of Banking Deposit Laws Are Enacted Insurance Funds Commenced
2007, Present Integrated Deposit Insurance Apparatus
Banks Securities companies Insurance companies Life insurance Non-life insurance Merchant banks Mutual savings banks Total
Domestic
17 39 14 15 2 110 197
Foreign
36 14 8 6 0 0 64
Total
53 53 22 21 2 110 261 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 .
Deposit Insurance Fund Mgmt. & Planning Dept.
Office of Fund Operation Office of Deposit Insurance Policy Risk Surveillance Research Dept.
Risk Surveillance Dept. Ⅰ~Ⅱ Ongoing Surveillance Team Ⅰ~ Ⅴ
Resolution
Insolvency Resolution Prompt Resolution Dept.
Resolution & Finance Corporation
Follow-up Management
Collections Asset Mgmt. Dept.
Receivership & Collections Dept.
Insolvency Investigation Investigation Dept.
Special Investigation Mission
< Deposit Insurance Committee : The Highest Decision-making Body >
•
Purpose
•
Functions
•
Members
: Maintaining the Objectiveness & Neutrality of the Deposit Insurance System, Ensuring Fairness in the Deposit Insurance System, Promoting Cooperation among related Organizations : : Deliberates and Decides on KDIC’s Major Affairs 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 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 5. Roles of Participants in the Financial Safety Net
Government
Provides Broad Regulations and Serves as an Adjustor in Times of Financial Crisis
Deposit Insurance Apparatus
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
Five Main Roles of KDIC
Insolvency Investigation Collections Risk Surveillance
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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.
Insured Financial Institution Rate
Banks Securities Companies Insurance Companies, Merchant Banks and MSBs Average balance of deposits, etc. × 0.1% Average balance of deposits, etc. × 0.2% 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.
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Ⅱ
. Deposit Insurance 2. Payment of Insurance Claims
Scope & Maximum Limit of Protection Withholding of Insurance Benefit Payment Acquisition of Claim Rights 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.
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.
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.
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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 Self rehabilitative 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.
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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 International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
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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.
International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007
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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
Collect the KDIC’s Inside Information
Actions Targets
On-site Investigation
Gather Information Verify the Facts Secure Evidence
Q&A
Provide Opportunities for the Alleged to Make Statements Actions that Have Caused Losses to the Institutions by Violation of Laws or Regulations 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 2. File Suit against Relevant Personnel
Poorly-run FIs KDIC
4.Recovery by Disposal of Individuals’ Assets
(Trustees)
3. Win the Suit 5. Take over the Claim Right of Mismanaged FI Refusing to Conduct Loss Compensation Claim
Court
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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 Account under Certain Restriction related Persons’ Account with Comprehensive Authority of Inquiry regarding an
• 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