Bank Run: South Korea Suspends Four Savings Banks for Six Months in Liquidity Crunch
February 20th, 2011Via: Bloomberg:
South Korea’s Financial Services Commission suspended the business of four local savings banks for six months from today due to a liquidity crunch.
The four banks are Bohae Mutual Savings & Finance Co. and three subsidiaries of Busan Savings Bank — Jungang Busan Savings Bank, Busan II Savings Bank, and Jeonju Savings Bank, the financial watchdog said in a statement today.
“They have suffered a bank run” after the recent suspension of two other banks, the FSC said in a statement after a meeting at 7:30 a.m. today. “We concluded that they will not be able to meet demand for withdrawals, eventually hurting depositors’ interests and credit order.”
Busan Savings Bank and Daejeon Mutual Savings Bank were ordered to halt operations for six months from Feb. 17 due to soured construction project loans. The commission is tightening scrutiny of smaller mutual savings banks, with a plan to buy as much as 3.5 trillion won ($3.1 billion) worth of deteriorating loans made to builders and developers.
State-run Korea Finance Corp. and other big commercial lenders in the country are prepared to provide 2 trillion won in credit to the mutual banks to prevent a potential liquidity crunch, and the government may secure as much as 10 trillion won together with Korea Deposit Insurance Corp., the commission’s chairman, Kim Seok Dong, said on Feb. 17.
