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Management of Deposit Insurance Funds

  • The KDIC’s funds have separate accounts for banks, investment brokers and dealers, life insurance companies, non-life insurance companies, merchant banks, mutual savings banks and credit unions (only in the case of the Deposit Insurance Fund Bond Redemption Fund). These accounts are managed separately.
  • Though between-account transactions within the same fund are allowed, transactions between the Deposit Insurance Fund and the Deposit Insurance Fund Bond Redemption Fund are prohibited.
  • Under the Public Fund Redemption Plan announced by the government in 2002, it was decided that assets and liabilities related to financial restructuring would be separated from the Deposit Insurance Fund (DIF) on January 1, 2003 to set up a new fund called the DIF Bond Redemption Fund. The DIF Bond Redemption Fund is used for completing the financial restructuring process and recovering related public funds. It was also decided that the DIF would be funded with insurance premiums paid after 2003 to deal with insurance contingencies that occur after 2003.

Funding

The Deposit Insurance Fund is funded from the following sources.

  • Contributions from insured financial institutions
  • Contributions from the government
  • Funds raised by issuing Deposit Insurance Fund bonds
  • National properties granted to the KDIC by the government
  • Borrowings from the government, Bank of Korea, insured financial institutions and other agencies designated by the Presidential Decree
  • Deposit Insurance Premiums
  • Funds raised by collecting claims
  • Funds recovered from financial assistance provided for the resolution of failed financial institutions
  • Investment profits of the Deposit Insurance Fund and other revenues

Contribution

When an insured financial institution receives a business license or an approval for establishment, it should pay the KDIC an amount calculated by multiplying its paid-in capital or equity investments by a pre-determined rate within the limit of 1/100 (10/100 for merchant banks and mutual savings banks) within one month after the date of business opening. However, in case of a merger or spin-off, there is no need to pay such contributions.

Any person who has obtained authorization for investment brokerage and trading services for collective investment securities only under Article 9.21 of the Financial Investment Services and Capital Markets Act should pay a contribution in the amount obtained by multiplying the minimum equity capital provided for in Attached Table 1 of the Enforcement Decree of the Financial Investment Services and Capital Markets Act by 1/100. However, in case the person who has obtained authorization for investment brokerage and trading services for collective investment securities only has also obtained authorization for the investment brokerage and trading services for other securities under Article 12 of the Financial Investment Services and Capital Markets Act, and if the amount of contribution paid when he/she obtained authorization for investment brokerage and trading services for collective investment securities only falls short of the amount determined under Article 14.1.2 of the Depositor Protection Act, he/she should pay the difference.

Contribution Rates for Each Type of Financial Institutions
Contribution Rates for Each Type of Financial Institutions
Insured Financial Institutions Contribution Rates
Banks 1/100
Investment Traders and Brokers 1/100
Insurance Companies 1/100
Merchant Banks 5/100
Mutual Savings Banks 5/100

Deposit Insurance Premiums

Each insured financial institution should pay the KDIC as annual insurance premiums the amount calculated by multiplying the balance of deposits, etc. (in the case of insurance companies, the amount of money determined by the Presidential Decree in consideration of the liability reserves under Article 120 of the Insurance Business Act) by the rate prescribed in the Presidential Decree not exceeding 5/1,000. (If the amount is less than KRW 100,000, they should pay KRW 100,000 instead.)

Insurance Premium Rates for Each Type of Financial Institutions
Insurance Premium Rates for Each Type of Financial Institutions
Insured Financial Institutions Premium Rates
Banks 8/10,000
Investment Traders and Brokers 15/10,0001)
Insurance Companies 15/10,0002)
Merchant Banks 15/10,000
Mutual Savings Banks 40/10,000

1) For insured deposits that are held by securities firms (including trusts) in accordance with Article 47.1 of the Financial Investment Services and Capital Markets Act, a 30% discount is offered.

2) Premium rates can be adjusted within the limit of 5/100 considering the insurance company’s number of years in business, credit profile and financial health.

  • Target Fund System

  • Under the target fund system, reserve targets are set in advance at a level where the KDIC would have enough resources to deal with losses of a certain amount. When the reserves reach the target range, premiums are discounted. The system was put in place in January 2009.
  • Target Reserves for Each Account
  • Insurance Premium Rates for Each Type of Financial Institutions
    Target Reserves1) Banks Investment Traders and Brokers Life-insurers Non-life Insurers Merchant Banks Mutual Savings Banks
    Lower Limit 0.825% 0.825% 0.660% 0.825% Deferred2) 1.650%
    Upper Limit 1.100% 1.100% 0.935% 1.100% 1.925%

1) Target reserves are a certain percentage of insurable deposits as of the end of the KDIC’s previous financial year.

2) It was impossible to set the target because there was only one insured merchant bank.

3) The reserve targets as above are applied from April 2011.

Investment

The Deposit Insurance Fund is preferentially invested in bonds, such as government/public bonds within the scope where stability, profitability, and liquidity are guaranteed. The purchased bonds, in principle, are held until maturity. To maintain the stability of the funds, investment in performance-based products, with no principal guarantee, is prohibited, while investment in MMF beneficiary certificates of investment pools for public funds is allowed.

There are pre-determined percentages for investment in each of the above categories - bonds, MMF beneficiary certificates of investment pools for public funds and deposits. However, the percentages can be adjusted to a certain degree so that the funds are managed flexibly to cope with unexpected market conditions.