KDIC’s Differential Premiums and Policy Initiatives

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Presentation transcript:

KDIC’s Differential Premiums and Policy Initiatives 2017 Biennial IADI Research Conference - Regulators’ Roundtable Bumgook Gwak Chairman and President Korea Deposit Insurance Corporation Basel, Switzerland, 2 June 2017

Designing an Effective Financing Regime for Deposit Insurance Distribution of Risks Implications for Policy Initiatives

Low level of Regulatory Impact High level of Regulatory Impact Distribution of Risks Low level of Regulatory Impact Deposit-based premiums Loose capital requirement High level of Regulatory Impact Risk-based premiums Tight capital requirement Shadow Banks Commercial Banks risky asset Shadow Banks Commercial Banks risky asset

Implications for Policy Initiatives Accuracy and credibility of the premium schemes in response to changes in policies market environment Cooperation with regulators that are responsible for prudential supervision of commercial banks Balanced regulatory measures: deposit insurance premiums & capital requirement Re-defining the scope of deposit insurance coverage A fair distribution of risks within the financial system

The Differential Premium System of KDIC History Assessment Overview Challenges and Future Plans

History – Differential Premiums 1996: Establishment of KDIC 1999: Initial review for introduction 2009: Legislation 2014: Came into force 2017: Full-scale implementation 5-year grace period Adaptation period

Assessment Overview Application Evaluation Criteria Calculation of premiums : Annual basis Absolute evaluation - 3 categories Evaluation Criteria Fundamental (80%) Crisis responsiveness (40%) Capital adequacy Liquidity Asset management (20%) Asset quality Loss-absorbing capacity (20%) Earnings Supplementary (20%) Financial risk Management (10%) Other quantitative factors Other risk management Compliance, regulatory penalties etc.

Challenges and Future Plans Amendment of Evaluation Model Regular reviews: every 3 to 5 years Consulted with member institutions, their associations & academia. The current model has been modified in 2016. Communication with member institutions Opening a forum for public consultation Holding workshops industry by industry Providing each member institution with detailed evaluation results Increasing gaps between categories Introduced mild gaps to mitigate the burden of increased premiums at the beginning To expand the premium gaps gradually in the upcoming years

Thank You for Your Attention Bumgook Gwak Chairman and President Korea Deposit Insurance Corporation (KDIC) Cheonggyecheon-ro 30, Jung-gu 04521 Seoul, Korea E-mail: international@kdic.or.kr