Gov`t Could Insure FX-denominated Bank Deposits

The ruling Grand National Party has asked the government to revise regulations to guarantee foreign currency deposits at banks.

In a parliamentary meeting at the National Assembly yesterday, the party`s chief policymaker Yim Tae-hee said, “Koreans have deposited dollars in domestic commercial banks. Certainly, the Korean government has not guaranteed savings denominated in foreign currencies, but the Grand National Party has asked the government to revise relevant laws and regulations to guarantee a certain amount of savings in foreign currencies.”

Bank deposits are insured for up to 50 million won (34,064 dollars) in principal and interest. The government is considering revising the Depositor Protection Act to insure savings in foreign currencies worth up to 50 million won. When converting foreign currency into won, the exchange rate set at the moment when the money is put into an account or when a financial institution loses its capability to return the money will be used.

“Though the Bank of Korea has injected liquidity into the market, commercial banks have hesitated to lend money due to worry that they may be required to take responsibility," Yim said. "The government will not hold commercial banks accountable if they provide loans to help companies and households roll over loans.”

“Taking recent financial difficulty into consideration, we urged supervisory organizations to flexibly apply the BIS capital adequacy ratio.”

Yim added, “The government has provided foreign currencies to banks suffering from a lack of short-term borrowing to relieve domestic companies from jitters over exports and imports and payment. Korea has sufficient foreign exchange reserves, but we will prepare for a prolonged period of difficulty.”

koh@donga.com