FSC Proposes Increasing Maximum Deposit Protection Coverage to KRW100 Million

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Rule Change Proposed to Increase Maximum Deposit Protection Coverage to KRW100 MN from September 1 May 15, 2025

The Financial Services Commission issued a preliminary notice of legislative revisions intended to raise the maximum deposit protection coverage on May 15. The revision proposal will enter a public comment period from May 16 to June 25, 2025. For the first time in 24 years, the revised rule will increase the maximum deposit protection coverage to KRW100 million from the current level of KRW50 million from September 1, 2025. The increased deposit protection limit will apply to both banks and savings banks whose deposit protection is covered by the Korea Deposit Insurance Corporation (KDIC) and mutual finance institutions whose deposit protection is covered by their own federation funds. Thus, from September 1 this year, depositors are guaranteed deposit protection of up to KRW100 million in the event of a financial company turning insolvent or bankrupt and becoming unable to pay their deposits. This will not only help to strengthen protection for depositors but also alleviate the inconvenience of having to spread out savings across multiple financial institutions. Moreover, it will raise the domestic deposit protection level on a par with those seen in major overseas countries and push up the overall volume of insured deposits, which will help to shore up confidence about financial market stability.

Prior to the Asian financial crisis in 1997, there were varying degrees of deposit protection coverage observed by different financial sectors, ranging between KRW10 million and KRW50 million. However, in the wake of the 1997 Asian financial crisis, blanket guarantees were temporarily introduced across all financial sectors between November 18, 1997 and the end of December 2000. In order to address the problem of moral hazard arising from blanket guarantees, limited coverages were reinstated In 2001 across all financial sectors with the maximum coverage of KRW50 million, which has remained the same for the past 24 years. Considering the level of growth seen in the economy as well as the increase in deposit assets over the past 24 years, the Depositor Protection Act was revised and promulgated on January 21 this year, establishing the deposit protection coverage of at least KRW100 million and the implementation period of no later than one year from the date of promulgation.

Against this backdrop, the FSC has set up and operated a taskforce with officials from related organizations and industry experts since January this year to review appropriate conditions and implementation period for raising the deposit protection limit. At the taskforce meetings, officials discussed the potential of impact on money market as it is possible that deposits may move toward savings banks and the mutual finance sector away from banks, which in turn can resort to issuing more bank bonds to make up for the outflow. Considering this, the taskforce came to a conclusion that it will be desirable to start implementing the change while avoiding the end or the beginning of the year when there is significant level of term deposit cancellations and bond market volatility. Financial companies also requested about three months of a preparatory period.

Therefore, after having a comprehensive review on the issues raised and discussed at the taskforce meetings, the FSC has decided to implement the change in deposit protection limit from September 1, 2025 when the impact from money move can be relatively moderate and the financial sectors can have sufficient time for preparation. Moreover, the FSC will actively take steps to help improve the soundness and loss absorbing capacity of savings banks and mutual finance institutions.

Along with the KDIC-covered banks and savings banks specified under the Depositor Protection Act, mutual finance businesses—credit unions, agricultural cooperatives, fisheries cooperatives, forestry cooperatives, and community credit cooperatives—that are covered by their own federation funds will also be subject to the increased deposit protection limit of KRW100 million. It is the international standard to have the same level of deposit protection limit for deposit-taking institutions, or otherwise there may be confusion for consumers and concerns about money move towards higher protection coverages. As such, the FSC is proposing this revision jointly with other relevant ministries—the Ministry of the Interior and Safety, the Ministry of Agriculture, Food and Rural Affairs, the Ministry of Oceans and Fisheries, and the Korea Forest Service—to update rules in six different Enforcement Decrees overseen by different government organizations.

Moreover, retirement pension plans, pension savings, and accident insurance payments that are currently treated separately within the same financial company will also be subject to the same level of increase in deposit protection limit to KRW100 million from the current level of KRW50 million.

Meanwhile, there will be subsequent steps taken by the FSC and the KDIC to find an appropriate level of deposit insurance premium rates for financial companies considering an expected increase in insured deposits. Financial companies will be subject to new deposit insurance premium rates from 2028.

Through continuous operation of a taskforce, the FSC will closely monitor money move and potential impact on markets. The financial authorities will particularly focus on the potential liquidity and soundness problems arising at certain financial companies as depositors may move their money to those offering higher interest rates and more stability. Moreover, the FSC will seek to introduce a financial stability vehicle under the deposit insurance scheme to preemptively provide liquidity and capital support to the financial companies undergoing difficulties but operating on normal conditions. The authorities will also look into ways to ensure prudential management in the nonbanking sector.

This revision proposal will enter a comment period between May 16 and June 25 and take effect on September 1, 2025 after going through a successive deliberation and approval process.

• Please refer to the attached PDF for details.

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