Financial authorities are accelerating the introduction of the 'rapid resolution system' for troubled financial companies. The rapid resolution system is characterized by the ability to sell troubled financial companies without obtaining consent from stakeholders such as shareholders. With the introduction of this system, it will be possible to prevent the spread of insolvency to the entire financial sector at an early stage, as seen during the bankruptcy of Silicon Valley Bank (SVB) in the United States.
According to the financial sector on the 20th, the Korea Deposit Insurance Corporation, a financial public institution, plans to hold a public hearing on improvements to the rapid resolution system in the first half of this year. After gathering opinions from experts in the financial sector through the public hearing, the Financial Services Commission plans to create a revision bill for the Financial Industry Structure Improvement Act and submit it for government legislation in June.
Currently, financial authorities must receive and review a corrective plan before the sale of troubled financial companies and go through pre-procedures such as stakeholder adjustments. If the rapid resolution system, which is a kind of 'fast track,' is implemented, financial authorities will be able to transfer or rapidly sell the assets of troubled financial companies without these procedures. During the SVB incident, the Federal Deposit Insurance Corporation (FDIC) quickly transferred the assets, including deposits, held by SVB to a bridge bank (temporary bank), enabling the resolution without a 'bank run.'
If rapid resolution of troubled financial companies becomes possible, the funds allocated for restructuring can also be minimized. The Korea Deposit Insurance Corporation uses the reserve fund, which is accrued from the deposit insurance premiums paid by financial institutions, to resolve troubled financial companies. During the large-scale financial crisis involving savings banks in 2011, a total of 27.2 trillion won was injected into the fund. To date, the recovered amount is 14.2 trillion won, which is about half.
There is growing support for the argument that the introduction of the rapid resolution system should be expedited in preparation for the restructuring of savings banks, which are experiencing a rapid deterioration in soundness due to prolonged economic recession. A financial sector official noted, "As restructuring in savings banks is likely to become visible this year, swift government response is necessary."
The Korea Deposit Insurance Corporation plans to strengthen monitoring of savings banks this year. In its work plan, it stated, "We will continuously monitor the operational performance and financial indicators of savings banks, and enhance preliminary analysis of vulnerable savings banks based on quarterly reports." It will also establish an early warning system to respond to bank runs.