Trang Chủ
It is the fact that there is an identity in the economic development history of Vietnam and South Korea, and that those lessons of South Korea in the past and present shall be possibly useful to Vietnam in the time to come. On this basis, we would like to introduce the KDIC’s exemplary measures taken against crisis, being regarded the most appropriate lesson as possible for Vietnam to learn .
1. Solid and accountable legal foundation
It is affirmed that the establishment of KDIC and its operation on basis of solid and accountable legal foundation, in parallel with right policy and orientation and in line with exemplary international practices on deposit insurance, have attributed to remarkable attainments of KDIC in crisis resolution.
The law on depositor protection has been issued prior to the establishment of KDIC. This law stipulates clearly the functions, obligations, major areas of business of the deposit insurer in South Korea, including the details of objectives of KDIC’s activities as a view to protecting deposits of depositors and ensuring financial stability in South Korea, with the majors functions of: 1) deposit insurance fund management; 2) risk supervision; 3) failure resolution; 4) recovery; and 5) investigation.
Adequate and stable legal basis in appliance to other applicable corrections in various laws in different areas of financial sector has supported positioning KDIC as an independent deposit insurer and an exemplary integrated deposit insurer in cooperation with other players in the financial safety net to resolve bank failure and financial crisis effectively in South Korea. These have contributed to ensuring improvement of banking system soundness and macro-economic stability in the country.
2. Ensuring and Increasing public confidence
During crisis periods, it is a pivotal condition to ensure and increase public confidence against challenges and dilemma of banking and financial system. KDIC has taken different measures that are aimed at maintaining, improving public confidence in banking-financial and deposit insurance systems, preventing bank run, and contributing to recover South Korea system’s stability.
An increase in deposit insurance coverage
The original deposit insurance coverage on bank deposits had been Won 20 million/ person since January 1997. However, affects of the 1997-Asia financial crisis deliminate seriously public confidence in banking-financial system of South Korea. Thus, KDIC temporarily moved to blanket coverage between December 1997 and January 2001. This has helped recover and ensure public confidence in banking system and prevent bank run. Eventually, the South Korea’s banking system gets out of domino-effect failure or systematic crisis.
An expansion of scope of coverage
Another action against crisis effectively taken by KDIC is an expansion of insurance areas. During crisis periods, KDIC has made temporary increase in insured products, such as expansion of insurance coverage to foreign currency deposit, certificate of deposit, deposit of government, insured financial institutions etc… in order to maintain public confidence. Factually, it is ensuring and attracting deposit into banking system, helping overcome liquidity stress due to bad-side effects of crisis.
3. Peaceful and Effective failure resolution
Pro-actively involvement in financial restructuring
An effective and thoroughly action against crisis taken by KDIC is financial restructuring. Post to the 1997-crisis, KDIC has pro-actively been involved in the banking financial system restructuring in South Korea, affirming an enhancement in sound ability of financial institutions. KDIC has provided 517 insolvent institutions with financial assistance with total amount of Won 110.900 billion. In resolution proceedings, KDIC minimizes hazard by applying principles of minimal costs, and loss sharing. KDIC involves in carrying out investigation and imputing accountability for failures to individuals and institutions. Therefore, there has been big improvement in corporate governance in financial institutions. Banking – financial system has been recovered in stable manner and been more effectively in operation, contributing to stability of economic development in South Korea.
In the period of the current global financial crisis, thanks to consolidated economic foundation and achievements of financial restructuring post to the 1997-crisis, the economy and banking system quickly overcome negative impacts of the crisis. Despite the fact that some mutual saving banks failed, KDIC resolves failures in peaceful manner through operations such as payment, P&A and financial assistance. Thus, the banking – financial system is relatively stable upon the 2007-2010 global financial crisis happing. It is a vital factor to help recover, stabilize trading balance and the economy of South Korea.
Establishment of Contingency Plan
In order for effective and peaceful crisis resolution as well as preparedness of response to future crisis, KDIC has established its contingency plan. This plan has been made on basis of researches and correspondent responding measures of resolution taken in a line with reference to level and signs of crisis. Upon level from 1 up to 3, deposit insurer shall be undertaking their appropriate action such as consolidation of supervisory activities on deposit withdrawal, increase in insured products or temporarily blanket coverage. Those are measures carried out by some countries in dealing with crisis resolution, making considerable contribution to enhancing public confidence and stabilizing banking – financial system in country.
| Level | Measures Taken |
| Level 1: Signs of Financial Crisis | -Strengthen monitoring on deposit withdrawals and bank runs -Promote expansion of covered products |
| Level 2: Beginning of Financial Crisis | -Temporary blanket coverage -Temporary expansion of the scope of depositors |
| Level 3: Actual Financial Crisis | Temporary expansion of covered products (eg. RP, CMA, MMF) |
Lessons learned with reference to crisis resolution in Vietnam
With a view to actual experiences of KDIC as mentioned above, following is lessons learned for Vietnam:
1) Adequacy of legal basis of correction deposit insurer’s activities. Deposit insurer should be entitled with such full functions and power that they can be pro-actively involved in failure resolution against crisis.
2) Ensuring and enhancing public confidence is an important factor that helps banking – financial system to overcome dilemma and challenges. Therefore, it should be made as a target set first among measures against crisis.
3) Establishment of systematic crisis resolution process: It should be clearly defined what systematic crisis is, detailed regulations of missions, rights and obligations of each of financial safety net players upon bank failure resolution against crisis. In accordance with international practices, it is necessary to build up appropriate contingency plan in order for prompt action against crisis and that those involved in crisis resolution should be entitled with as much power and obligation as possible as well as provided with appropriate tools to deploy contingency plan effectively.
