Ruling, opposition parties agree to raise deposit protection limit

Policy chiefs and senior floor leaders from the People Power Party and the Democratic Party of Korea brief the press after closed-door talks on livelihood bills to be presented at the National Assembly tomorrow. (Yonhap)

The deposit protection limit in South Korea is set to increase from 50 million won ($35,589) to 100 million won.

The policy committees of the country’s ruling and opposition parties agreed on Wednesday to pass an amendment to the Depositor Protection Act (DPA) to raise the deposit protection limit to 100 million won.

The move came after the ruling and opposition parties agreed to address six livelihood bills on which they have no disagreement. The amendment is expected to be processed in the plenary session on Thursday.

The deposit protection limit is a system that safeguards customers’ deposits when banks or other financial institutions go bankrupt. Korea Deposit Insurance Corp. collects deposit insurance premiums from financial institutions and holds them in reserve.

If a financial institution becomes unable to make payments on deposits, the corporation provides the deposits to customers on behalf of the institution. The current protection limit, set at 50 million won in 2001 after being raised from 20 million won, has remained unchanged for 23 years.

Consequently, there has been a growing call to raise the protection limit to reflect the increase in asset sizes. The call for strengthened safeguards gained support after Silicon Valley Bank (SVB) collapsed in the United States in 2023, which fueled fears of bank runs.

The United States has set a deposit protection limit of $250,000, the United Kingdom at 85,000 pounds, and Japan at 10 million yen.

Korea’s protection limit ratio in the banking sector was also 1.2 times its gross domestic product (GDP) per capita last year, lower than that of major foreign countries such as the United States (3.1 times), the United Kingdom (2.2 times), and Japan (2.1 times). The amendment’s implementation date is yet to be determined.