`Deposit Insurance Funds on the Brink of Bankruptcy`

It was reported that the deposit insurance funds are on the brink of bankruptcy. The deposit insurance funds have been used to protect the depositors who had the insolvent financial institutions to manage their money.

If the Korea Deposit Insurance Corporation (KDIC) intends to make up for the 30 trillion won of losses, it will take 17.4 years for the KDIC to generate enough income to make up for such losses.

Deputy Director Chun Hong-Taek of the Korea Development Institute (KDI) and Ahn Young-Suk, researcher at the KDI, remarked as such yesterday in a report `the major task for the development of the system of deposit insurance` in the quarterly publication of the KDIC (2001. II).

The report pointed out that ``the deposit insurance funds are close to bankruptcy from losses incurred while providing bailout packages to insolvent financial institutions. The KDIC should actively examine who and how to share the losses including the additional losses that may incur in the future.``

From 1998 to May this year, the KDIC has issued approximately 66.55 trillion won worth of bonds and has provided bailout funds amounting to 85.36 trillion won to insolvent financial institutions.

The KDIC was able to collect 12.5288 trillion won and received the insurance income amounting to 1.9867 trillion won from the financial institutions only.

The report pointed out that ``a serious deficit is anticipated based on the current cash flow and the balance of the KDIC.`` The report also proposed that the KDIC should separately manage the deposit insurance funds from restructuring funds and continue to save aiming at the goal amount in order to assure the autogenesis of the deposit insurance funds.

The report also asked for stronger supervision of the KDIC by granting the right to cancel the qualification for insurance, which indicates the authority to order the withdrawal of the financial institutions and to introduce the graded insurance premium system by each financial institution.

yhchoi65@donga.com