Bringing Stability to the Financial Market

KDIC celebrates 10th- year anniversary, vowing to cope with any changes in financial environment

The Korea Deposit Insurance Corp. marked its 10-year anniversary with a ceremony June 1. President Choi Jang-bong, in his anniversary speech, said the company should be able to overcome the challenge of competing in the world market by completing its integrated deposit insurance system to protect investors, depositors, and those who are related with contracts in banks, securities firms and insurance firms in this age of an integrated finance, taking advantage of its decade-long experience. He said the KDIC has played a great role in the investment of funds to help recover financial institutions on the brink of bankruptcy and collecting back those funds in addition to streamlining near bankrupt financial institutions and investigating those responsible for management failures of those institutions. The KDIC worked hard to bring stability back to the financial market by helping the financial institutions to regain secure operations.
The KDIC chairman recalled that a total of 16 financial institutions went belly-up during the foreign exchange crisis in 1997, resulting in the demise of five banks, in addition to many savings and credit cooperatives going out of business, pushing the financial system on the verge of collapse. Amid the chaotic situation, the KDIC has done its best to lessen the burden on the people by retrieving as much as public funds as possible.
As a result, the financial system has recovered its functions with a stronger base of operation than before and has become a foundation stone for the system to build a regional financial hub in Northeast Asia. He said the KDIC has been holding various events under the slogan of 'KDIC 10/10 Spiritual Campaign'to celebrate the successful result of its operation to save the financial institutions.
He said looking ahead over the next 10 years, the company does not have its future guaranteed and all the officers and employees of the company would have to shed more sweat in the next 10 years than the sweat they shed in the first 10 years.
He pointed out that ,for one, the financial institutions have been expanding their business territories with mergers and set up groups and we need to check up on the current depositor protection system to see if it needs changes to cope with the financial groups' "too big to fail"syndrome. The securities and insurance businesses will be specialized to become central to the financial system with its risks compounded by financial demands. As such, the current deposit protection system would have a limit to its role to secure the stable financial system. It would need a system to project investors and those related with contracts. He also noted that cross-border financial transactions have been expanding with the economic walls among the countries, requiring us to seek means to cope with those changes for the deposit protection system. The financial environment that we will face would change beyond any one's imaginations in the future.
He continued on with the call for hard work to make the system to be the best in the world as an overall means to protect depositors, investors, and contractors related with banks, securities firms, and insurance firms We have to be armed with a strong spirit for service and incubate a superb capacity to be respected by the people.
When these are accomplished, we will see the improvement in the deposit insurance system and the prevention of the demise of the financial institutions would have a successful result nor far away, in addition to the effort to reform organization and personnel systems that we have been moving forward, the president said.
The Korea Deposit Insurance Corp. held its 10-year anniversary seminar on June 7 in cooperation with the Korea Economic Society with the main theme of "the Evaluation of the Results of the Financial Restructuring and the Direction of Development of Deposit Insurance System."Chancellor of Seoul National University Chung Woon-chan, who also is chairman of the economic society, opened the event with a remark, followed by a welcoming address by KDIC President Choi.
Professor of Yoon Won-bae of Sookmyung Women's University and Professor Kin In-joon of Seoul National University, presided over the academic seminar.
The event was dedicated to evaluating the results of the financial restructuring and the role played by the KDIC in the process and discussions on the direction of development of deposit insurance system.
In Session I, Professor Kim Kyung-soo of Sungkyungwan University and Professor Oh Wan-keun of he University of Foreign Studies, presented their papers on the financial restructuring. They noted that the financial restructuring raised the effectiveness of the finance industry, but it cause the economic crises to concentrate into a special sector. They called for the government's strengthening of soundness of the financial industry with stronger regulations and measures to cover the weakness of the deposit insurance system.
Following the first round of theme presentations, Professor Choi Hoe-gap of Aju University and Kim Jong-yol, a researcher with the KDIC, presented their themes.
They gave high marks for the KDIC's objective and transparent streamline methods for financial institutions following the foreign exchange crisis of 1998 and pointed out the way for the KDIC's intervention in the management of the financial institutions on the verge of going bankrupt to minimize the losses for the country.
In the session II, main theme presenters were professor Ahn Jong-gil of Myungji University and professor Lee Jong-wook of Seoul Women's University. They argued for an effective management of bankrupt financial institutions, the preservation of insurance fund on a proper level, crisis prevention measures to prevent financial institutions from going belly-up, in discussing changes in the role of the KDIC in order to maintain the financial safety net.
In the panel discussion following the theme presentations, professor Kim In-joon presided over a panel discussion participated in by professor Lee, Dr. Lee Dong-gol of the Financial Research Institute, Director-General Lee Song-koo, head of the regulation reform planning team of KDIC, Vice President Choi Sang-woon of the Shinhan Bank, and Dr. Song Hong-son of KDIC, among others,
Each of them put forward their recommendations on the prevention of financial crisis, the stable financial system by the role played by the KDIC and ideas for the development of deposit insurance system and the direction, very diversified in ideas.
Professors of economics Kim Kyung-soo and Oh Wan-keun in themes presented, said Korea invested a total of 160 trillion won to save financial institutions in crisis in 1997 and as a result, the total number of financial institutions in business at the time at 2,103 were reduced to 1,329 as of February this year through mergers, the loss of licenses, and bankruptcy and Korea suffered the cost over 2 times the average loss incurred by other Asian countries hit by financial crises.
The changes in the business environment had been on the way even before the crisis, but it was hastened by the crisis. In the process of collecting the public funds provided to the financial institutions in crises, foreign funds flowed into the process, to realize earlier the globalization of the Korean economy.
The manufacturing sector has transferred its manpower to the service sector, boosting its productivity as a result, but the service sector experienced slower growth due to excessive manpower transferred from the manufacturing sector.
The stagnancy in the service sector is wide spread, considering that it has such high-growth industries as finance, communication, information, transportation and warehouse.
By the same token, the manufacturing sector is divided by large and small companies. Following the foreign exchange crisis, the level of savings fell, pushing the reductions in investment down further, creating momentum for the Korean economy to turn to black, but it accompanied slower growth. The crisis also a large change in the flow of funds in the financial sector, phasing out the popular word, "High Cost, Low Effect,"which had been a lagging problem in the Korean economy, the professors noted at the seminar. nw

KDIC President Choi Jang-bong.

President Choi addressing at the KDIC 10th anniversary ceremony on June 1.