1. 1 Funding of Deposit Insurance Systems and the KDIC January 19, 2010 Jae-Soon Park Director General Department of Fund Management

2. Table of Contents I. IADI’s Guidance Points 1. Deposit Insurance Funding Method 2. Deposit Insurance Assessments 3. Type of Deposit Insurance Reserve 4. Deposit Insurance Funds 5. Management of Deposit Insurance Funds II. Funding of the KDIC 1. Outline 2. Target Fund System 3. Differential Premium System

3. I. IADI’s Guidance Points 1

4. 1. Deposit Insurance Funding (DIF) Methods Premiums Failure Ex-ante Ex-post Hybrid Special premiums Levies Loans Three funding approaches 2

5. Pool of funds – readily available Equitable – all member institutions, including failed institutions, contribute Avoids pro-cyclical effect – reduces market volatility and systemic risk Increases public confidence Advantages of ex-ante funding 1. DIF Methods (Continued) 3

6. Clear assessment base and assessment criteria Premiums Ex-ante or Ex-post Paid by member institution Given time period Premium rate Flat-rated - Same rate - Easy to implement Risk-adjusted - Incorporates a risk factor - More equitable Assessment base Deposits on which premiums are assessed = × 2. Deposit Insurance Assessments 4

7. 3. Type of Deposit Insurance Reserve Target Reserve Yes / No Steady premium rate Long period of time Target reserve ratio / range Sufficient to cover losses under normal circumstances NoYes 5

8. Composition of the banking sector Liabilities of member banks Risk exposure Probability of failures Characteristics of typical losses, e.g. concentration 4. Target-Reserve Ratio Approach Factors to take into account 6

9. Funds Accumulated funds Target reserve Member institutions 4. Target-Reserve Ratio Approach (Continued) Disbursements, rebates 7

10. Different types of financial institutions One fundSeparate funds 5. Deposit Insurance Funds 8

11. 6. Management of Deposit Insurance Funds Deposit insurance fund Well-managed Readily available Appropriate investment policies & procedures Sound internal controls Risk mitigating practices Reporting systems Disclosure 9

12. II. Funding of the KDIC 10

13. 1. Outline Banks, financial investment companies, life & non-life insurance companies, merchant banks, MSBs Integrated deposit insurer Receipt of premium in advance Application of premiums to insured products Premium with uniform rates Financial assistance Use of funds collected from insurance premiums Other sources of funds if the fund is insufficient - Borrowing from government, the bank of korea, -insured financial institutions and others - Issuance of deposit insurance fund bonds 11

14. ☞ Effective date: January 2009 ☞ Rates of accumulation as of June 2009: 0.58% (Amount of accumulated funds: 5,649.9 billion won) 2. Target Fund System Assessment base: insured deposits - Banks, financial investment companies, non-life insurance companies: 1.5% ~ 2.0% - Life insurance companies: 1.2% ~ 1.7% - Mutual savings banks : 3.0% ~ 3.5% Target size of accumulation When target is reached Reaching target floor: reduction of funds Reaching target cap: exemption or refund of premiums 12

15. 3. Differential Premium Systems Enhancement of fairness, prevention of moral hazard, promotion of sound management Expected outcomes Major timeline of adoption Amendment of Depositor Protection Act: February 2009 Year of introduction: 2014 Future implementation (plan) Method of differentiation: different classes Range of difference: ±10% Period of assessment: one year Disclosure: not disclosed to the general public, etc. 13

16. Thank you for your attention! 14