Deposit insurance and insurance accidents
What is “deposit insurance”?
- “Deposit insurance” refers to the money paid by the Korea Deposit Insurance Corporation on behalf of financial companies (hereinafter “insured financial companies”) that have joined the deposit insurance when an insurance accident such as bankruptcy occurs and they cannot pay their deposits (see Article 31(1) of the Depositor Protection Act).
※ “Depositors, etc.” refers to those who have a claim on the guaranteed financial company for deposits, etc. (Subparagraph 3 of Article 2 of the Depositor Protection Act).
※ “Claims for deposits, etc.” refers to the principal, original amount, interest, profit, insurance money, and various payments and other agreed monetary claims that depositors, etc. have against the guaranteed financial company due to financial transactions such as deposits (Subparagraph 4 of Article 2 of the Depositor Protection Act).
※ The types of “deposits, etc.” can be found in Subparagraph 2 of Article 2 of the Depositor Protection Act and Article 3 of the Enforcement Decree of the Depositor Protection Act.
Criteria for payment of deposit insurance
- The claims of depositors, etc. for deposits, etc. are paid in the order of principal and interest. Even if a depositor, etc. has 2 or more claims for deposits, etc. as of the date of the insurance payment announcement, they are paid in the order of principal and interest. However, if there is collateral, payment is made according to it's the timing of such collateral [Article 8(2) of the Insurance Payment Regulation].
※ Details of the insurance payment criteria can be found in Article 8 of the Insurance Payment Regulation.
※ The payment limit for insurance money is KRW 50 million (Article 32(2) of the Depositor Protection Act; Article 18(7) of the Enforcement Decree of the Depositor Protection Act).
Types of “insurance accidents”
- The types of “insurance accidents” are as follow (Subparagraph 8 of Article 2 of the Depositor Protection Act):
· Type 1 insurance accident: Suspension of payment of claims for deposits, etc. by the guaranteed financial company
· Type 2 insurance accident: Cancelation of business license/permit, dissolution resolution, or bankruptcy declaration of the guaranteed financial company
Procedure for deposit insurance payment
Announcement of deposit insurance payment
- When the Korea Deposit Insurance Corporation pays insurance money because of an insurance accident, it must announce the following matters in at least 1 daily newspaper published in Seoul and in the region where the main office of the guaranteed financial company is located, as well as on its internet website [Article 31(3) of the Depositor Protection Act; the main body of Article 17(2) of the Enforcement Decree of the Depositor Protection Act; and Article 20(1) of the Insurance Payment Regulation].
· Period for claiming and paying insurance money;
· Place of insurance money payment;
· Method of insurance money payment;
· When the Corporation is using an agent for the payment,the agent institution;n and
· Other matters deemed necessary by the president of the Korea Deposit Insurance Corporation.
- However, when paying insurance money or provisional payment to depositors, etc. of mutual savings banks, it must be announced in at least 2 daily newspapers, including 1 published in the region where its main office is located, and on its internet website (proviso to Article 17(2) of the Enforcement Decree of the Depositor Protection Act).
Claim for deposit insurance
- Depositors, etc. must claim the insurance money according to the above payment announcement (Article 31(1) of the Depositor Protection Act; Article 21(1) of the Insurance Payment Regulation).
※ Detailed information on the documents required for claiming insurance money can be found on the Korea Deposit Insurance Corporation website (
https://www.kdic.or.kr) under “
Depositor Protection System-Deposit Insurance Information-Required Documents for Application.”
※ Provisional Payment
Q. The procedure to claim insurance money according to the payment announcement is complicated. Is there a way to receive it in advance if I urgently need the money?
A. In an insurance accident, depositors of the concerned financial company may face economic difficulties because of prolonged suspension of financial transactions. To minimize such difficulties, in a Type 1 insurance accident, depositors can receive in advance an amount determined by the Deposit Insurance Committee within the insurance payment limit (Article 31(2) of the Depositor Protection Act; the main body of Article 17(1) of the Enforcement Decree of the Depositor Protection Act). However, if the provisional payment exceeds the insurance money, the insurance money is limited to the maximum payment amount (proviso to Article 17(1) of the Enforcement Decree of the Depositor Protection Act).
To address the inconvenience to depositors because of drawn-out bankruptcy procedures, if a depositor makes a claim for a credit such as a deposit exceeding the depositor’s protection limit, considering the expected dividend rate that the depositor will receive in future bankruptcy dividends, the Korea Deposit Insurance Corporation (KDIC) will purchase it. Depositors can receive the amount calculated for the value of the deposit claim (see Article 35-2 of the Depositor Protection Act). Depositors who have not received the calculated payment can receive dividends according to the bankruptcy procedures of the relevant financial company.
Statute of limitations and decision on deposit insurance claims
- If the right to claim insurance money by depositors is not exercised within 5 years from the start date of payment, it will expire because of the completion of the statute of limitations (Article 31(7) of the Depositor Protection Act).
- For Type 1 insurance accidents, the decision on whether to pay the insurance money is made within 2 months from the day the insurance accident is notified, according to the resolution of the Deposit Insurance Committee (proviso to Article 31(1) and Article 34(1) of the Depositor Protection Act).
Suspension of deposit insurance payment
Targets and duration for suspension of deposit insurance payment
- The KDIC can suspend the payment of insurance money for up to 6 months from the announcement date of the start of insurance payment, etc. if the depositor or the like is related to insolvency or has a special relationship with the insolvent party (Article 3(1) of the Enforcement Decree of the Act on Corporate Governance of Financial Companies) (Article 31(6) of the Depositor Protection Act; Article 17-2 of the Enforcement Decree of the Depositor Protection Act).
- When the KDIC calculates the insurance money, if the depositor or the like has a claim such as a deposit provided as collateral for another person to the relevant nonbanking financial company or has a guarantee debt, the insurance payment can be suspended up to the amount equivalent to the collateral claim or guarantee debt until the secured claim or guarantee debt is extinguished (Article 18(1) of the Enforcement Decree of the Depositor Protection Act).