February 22, 2011

South Korea banking panic trigger run on deposits

Busan SkylineImage via Wikipedia

China Post reports that: "South Korea suspended operations at four more savings banks on Saturday after runs developed as customers rushed to get at their money despite official assurances the financial sector was secure."

The Financial Services Commission (FSC) said Saturday it was suspending three affiliates of Busan Savings Bank — Jungang Busan Savings Bank, Busan II Savings Bank and Jeonju Savings Bank — as well as Bohae Bank for six months each. “Considering recent waves of deposit withdrawals, available liquidity, remaining deposits and capacity to borrow, the FSC concluded that they might face a situation where they are unable to pay customers,”
Busan is the country's biggest savings bank, with assets worth 3.74 trillion won (US$3.4 billion).
Last month, regulators shut down Samhwa Mutual Savings Bank which became insolvent because of soured property loans.
Kim Seok-dong, the chairman of the Financial Services Commission, flew to Busan yesterday to stem massive withdrawals from savings banks after his agency suspended another four over the weekend.
The port city of Busan has emerged as the epicenter in the savings bank crisis after operations of the Busan Savings Bank group were suspended due to a capital shortage.
Kim vowed to make a personal deposit of 20 million won ($17,864) to convince depositors that the bank was financially sound.
In total, seven of the country’s 105 savings banks have been suspended.
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