Comments on General Guidance on Claims and Recoveries Discussion Paper Presented by: Mr. Dong Il Kim, Executive Director Korea Deposit Insurance Corporation IADI Fifth Annual Conference Rio de Janeiro, Brazil November 15-17, 2006

2 Outline of Comments Outline of Comments - Summary of Guidance on Claims and Recoveries - Comments on Guidance Discussion Paper - The Korean Case: The KDIC as A Receiver

3 I. Summary of Guidance on Claims and Recoveries I. Summary of Guidance on Claims and Recoveries  Organization of the Paper I.Executive Summary II.Introduction III.Claims and Recoveries IV.Conclusions

4 I. Summary of Guidance on Claims and Recoveries  Purpose of Guidance on Claims and Recoveries  to develop guidance on conducting the claims and recoveries processes after bank failure  to present tools and procedures to satisfy the claims of insured depositors  to present the tools and techniques for recoveries used to dispose of assets and recover value

5 I. Summary of Guidance on Claims and Recoveries  Guidance Points for Claims Process for the Deposit Insurer  Should develop a clear and detailed contingency plan  Should foster working relationships among the supervisory authority, relevant safety-net players, and the receiver to ensure a timely, accurate, and efficient pay off  Should identify a source of funding not to delaying pay off  Need to begin the claims process immediately on closure of an insured institution  Need to notify depositors of the reimbursement procedures at the time of a bank failure  Should define in law clearly the scope and level of coverage

6 I. Summary of Guidance on Claims and Recoveries  Guidance Points for the Recovery Process for the Deposit Insurer  Must obtain clear title and take control of the bank assets  Must have effective and efficient asset-disposition strategies reflecting asset characteristics and proper valuation tools  Maintain transparency and access to information to the market for the maximum value for assets to be sold  Be available of skilled staffs to manage bad assets  Must balance disposing of assets quickly and achieving maximum value

7 II. Comments on Guidance Discussion Paper  Claims take several forms, but only the claims of insured depositors are discussed  Deposit insurer’s access to deposit data before closure and strict securities rules excluding pre-closure data access may have both costs and benefits. Why access to deposit data before closure is only emphasized?  The role of receiver and Whether the deposit insurer can be appointed legally or not are essential to maximize recoveries. Should presents discussions or guidance on the issue of conflicts of interests and efficiencies of recovery

8 III. The Korean Cases: The KDIC As a Receiver  History of the Receivership in The Bank Failure  Early stage (Before October, 1998)  Inspection Commissioner (October ~ March. 2001)  Appointed as a Receiver in the Receivership (March ~ present)

9 III. The Korean Cases: The KDIC As a Receiver  History of the Receivership in The Bank Failure 1.Early stage (Before October, 1998)  The KDIC didn't have an appropriate regal authority to manage bankruptcy estates although it became the biggest creditor of bankruptcy estates by input of public funds.  It resulted in inefficiency of managing bankruptcy estates such as delaying bankruptcy proceedings, collecting bankruptcy estate’s asset after injecting a lot of public funds, and inadequate supervision on bankruptcy estates.

10 III. The Korean Case: The KDIC As a Receiver 2. Inspection Commissioner (October ~ March. 2001)  Pursuant to the Bankruptcy Act, KDIC became a member of Inspection Committee, which allowed the KDIC to supervise and manage bankruptcy estates to a certain extent.  The KDIC’s consent or approval must be obtained in order for the Receiver to proceed with asset disposition, to file a lawsuit, and to relinquish legal authorities. However, KDIC’s role was very limited in the field of active recovery  History of the Receivership in The Bank Failure

11 III. The Korean Case: The KDIC As a Receiver 3. Appointed as a Receiver (March ~ present)  The KDIC concluded that it was more efficient for KDIC or its staff to conduct bankruptcy proceedings "directly" than to conduct by a lawyer since KDIC or its staff has expertise in the financial sector  Therefore, KDIC made it obligatory for the court to appoint the KDIC or its staff to be a receiver when the insured financial institutions go bankrupt by enactment or revision of the law.  History of the Receivership in The Bank Failure

12 III. The Korean Case: The KDIC As a Receiver  KDIC appointed Receivers * The two securities companies where KDIC staff members were not appointed as a receiver of the receivership were companies into which no public funds were injected. KDIC & Attorneys Banks Insurance Companies Securities Companies Merchant Banks Mutual Savings Banks Credit Unions Total KDIC Attorneys Total Financial Institution Receivers

13 Thank you for your kind attention!