Compensation exceeding legal ceiling apparently designed to woo Busan voters


Questions have arisen over the fairness and legitimacy of a special bill to compensate the victims of last year’s Busan savings banks’ bankruptcy beyond the current deposit loss compensation ceiling.

The parliamentary state affairs committee on Thursday approved the bill to make up for 55 percent of financial losses over the legally guaranteed 50 million won ($44,500) for the savings bank depositors and its subordinated bonds holders. The compensation, estimated to reach 100 billion won is to be drawn from a special account of the Korea Deposit Insurance Corporation. The account is raised with deposit insurance money from financially healthy savings, banks and insurance policy subscribers.

Financial institutions such as the Korea Federation of Banks and the Korea Financial Investment Association, issued a joint statement Friday condemning the committee’s passage of the bill.

“The corresponding budget was established to protect depositors within the compensation ceiling (of 50 million won),” the statement read.

“Using the account for a certain group of depositors would be in serious violation of the deposit insurance system and the constitutional rule of law.”

The measure would also infringe on the rights of other financial consumers as it offers priority to savings banks victims, the financial institutions claim.

“The bill should not be taken to the parliamentary general meeting at all.”

The Financial Service Commission also pledged to persuade the parliamentary judiciary committee to reject the corresponding bill, officials said.

Observers pointed out that the committee’s move was an attempt to win over the hearts of the Busan voters, ahead of the April 11 general elections, especially as chairman Rep. Huh Tae-yeol of the ruling Saenuri Party, who is expected to run in a Busan constituency.

Rep. Cho Young-teck, the leading negotiator for the main opposition Democratic United Party is from Gwangji, where Bohae Savings Bank’s headquarters was located.

Committee officials, however, tried to assuage suspicions that the bill’s passage was part of electoral campaigning.

“The bill has been under discussion ever since the savings banks scandal broke out last year,” Huh said.

“Its purpose is to hold the government partially responsible for neglecting its supervision duties over the financial organizations.”

Also, the bill embraces the victims of 18 savings banks nationwide and does not just involve the southern city, he added.

Notwithstanding, economic experts are concerned if the bill passes the parliament, it would cause discredit in the Korean financial system.

By Bae Hyun-jung (tellme@heraldcorp.com)