Research Of Korean Deposit Insurance System

Deposit insurance system of Republic of Korea has been established in1990s. As a measure of maintaining financial stability and promoting economicrestructuring for emerging industrial country, the operating mechanism of thesystem could provide valuable experiences for the forthcoming similar systemof China. Korea deposit insurance system put into effect during the phrase offinancial structure adjustment. As the coordinated action for Korea’smarket-oriented interest rate reform, the establish cost of the system is lowerthan the one which established to meet urgent needs of crisis. Stick to theprinciple of “advancing gradually in due order”, Korea deposit insurancesystem went through several periods. Two years of founding period, four yearsof transitional period and the adjusting period which has been lasted adecade. The system mentioned above shows four features including low cost,extensive protection agency, the regulatory functions of KDIC (Korean depositinsurance corporation) gradually enhanced, institution design followedAmerican deposit insurance system.Korea deposit insurance system based on the “Depositor Protection Act”,applied compulsory insure, limit compensation and charge different premiumsaccording to different types of institutions. At the same time, it carries out thepre-payment, generally calculating payment system. Korea Deposit InsuranceCorporation (KDIC) is the professional organization to handle failure banks,proposing professional advice to help these failure banks exit the market. Thefunction of KDIC is gradually changing from “Cost minimization” to “Riskminimization”. During the past20years, Korean deposit insurance systemhave been undergo several financial crisis and play a key role in protectingdepositors and maintaining financial stability. However, the system has two serious drawbacks---sharp increase in moral hazard and deficit in mutualsavings banks’ account of deposit insurance fund. China should be payingattention to these issues.The Implicit deposit insurance of China has been unable to adapt to thepace of financial reform. Launch explicit deposit insurance system has becomethe dominant trend. The article shows that, in some aspects such as protectinglegitimate income of depositors, implementing the financial institutions’ marketexit system, returning the direction of government function, the depositinsurance system of ROK has enlightenments to China. This article suggestedthat China should formulate different premium rates for diversified financialinstitutions, focus on improving the efficiency of risk monitoring, improve therecovery of insurance funds, give necessary supervision and managementrights to deposit insurance corporation, seize the favorable opportunity offinancial reform accelerate the introduction of a deposit insurance system,ultimately maintain the domestic banking sector stability during the change inthe financial system.