Fear of a bank run is subsiding after the five savings banks whose capital adequacy ratios are lower than the 5 percent mark, and three other insolvent ones, were forced to suspend operations during the past two months. But the financial regulators still have much work to do before they declare the crisis over.
The latest case involved a Chuncheon-based savings bank, which the Financial Services Commission formally ordered on Tuesday to suspend its operations for six months. The order followed the savings bank’s earlier decision to halt its business temporarily.
The financial regulators say those savings banks continuing to do business without disruptions are regaining stability as deposit withdrawals are declining fast. But it does not necessarily mean there will be no such thing as a bank run in the future. Losses will pile up if construction continues to remain in the doldrums, with many of the savings banks still exposed to high risks of project financing.
As soon as the dust settles, the financial regulators will have to clean up the mess. The first thing they will have to do is to regain trust from depositors.
The Financial Services Commission lost much of depositor confidence when it failed to make good on its Feb. 17 promise that no additional savings banks would be ordered to suspend their operations during the first half of this year. True, the promise, made by Commissioner Kim Seok-dong, had a qualifier ― “on condition that there will be no excessive deposit withdrawals.”
But in a surprise move on Feb. 19, the commission suspended operations at four additional savings banks. Those who believed their deposits would be safe had to hold the bag. No depositor could be blamed for rushing to withdraw savings at the slightest sign of insolvency at his savings bank in the future.