FSC Chairman's Announcement Upon Bank Resolution

Our country as a whole has brought out all its wisdom to cope with the recent foreign exchange crisis. However, we continue to witness considerable weaknesses in our financial and corporate sectors and there are still signs of structural problems embedded in our system. As a result, we are currently in a liquidity crunch and the economy has yet to turn around.

As a way to break away from structural impediments and vicious circle of degradation and to ultimately strengthen economic fundamentals, the government with unprecedented commitment has underwent structural reform with key focus on the financial and corporate sectors restructuring.

On June 18th, 55 corporations were identified as non-viable in accordance to the assessments conducted by creditor banks. Today based on bank appraisal committee's evaluation of rehabilitation plans submitted by each bank, I would like to unveil the results as follows.

Cho Hung Bank, Commercial Bank of Korea, Hanil Bank, Korea Exchange Bank, Peace Bank of Korea, Kangwon Bank, Chungbuk Bank, a total of 7 banks will be subject to conditional approval on its rehabilitation plan and will have to prepare and submit implementation plans including strong reformative actions and recapitalization commitments by the end of July. After that in case this plan is disapproved or not implemented to a satisfactory level a business transfer or merger order will be imposed on the bank.

Banks such as Dong Hwa Bank, Dongnam Bank, Dae Dong Bank, Chung Chong Bank and Kyungki Bank whose rehabilitation plans were disapproved will be ordered to have its assets and liabilities transferred to Shinhan Bank, Housing & Commercial Bank, Kookmin Bank, Hana Bank, Koram Bank, respectively.

Throughout this transitional process the government will exercise its utmost effort to protect bank savings and ensure that customers will be able to attend business at these banks as usual.

To this end, despite of the fact that the resolved bank's good assets and liabilities will be transferred to the acquiring bank, bank business of the resolved bank will be carried out at the acquiring bank without interruption.

For the smooth execution of P&A transactions, there could be very limited business interruptions. However, payment settlement and deposit repayment as well as businesses of overdraft and bill discount will be carried out as normal. Therefore, depositors along with corporate clients will not be inconvenienced by this transition.

On top of this, in order to assist the acquiring bank in covering business of the resolved bank, measures to prevent liquidity problems at the corporate level such as funding from the Bank of Korea will be put to practice.

Although completely unfamiliar in this country, bank closures in other parts of the world is not uncommon. Examples of bank closures regardless of size can be frequently found not only in the U.S. and Europe but even in our neighboring country Japan.

Structural reform, not the imprudent solution of bailing out non-viable banks, is the definite path to enhancing the financial system and minimizing the burden on taxpayers. This valuable lesson can be easily witnessed in the experiences of other countries.

Today we open a new chapter in our financial system, in that from now on just like corporations financial institutions will be subject to fierce competition and market discipline, which means that those fit and sound will be able to develop whereas non-viable ones will fade away.

Through such a restructuring, soundness of banks will be enhanced, leading to the restoration of financial stability and the proper operation of intermediary functions. It is in this way that corporations will be provided with a sufficient level of funding to operate normally.

Willing cooperation of employees at financial institutions are at the core of the successful implementation of financial restructuring. Therefore, I sincerely call for those of you, especially those employed at the failed banks, to understand the inevitability of financial restructuring and to cooperate to the fullest in order to make the transition as smooth as possible.

The government will do everything in its capacity to provide employees of the resolved banks with employment at the acquiring banks to the extent possible. However, if there occur any dishonorable act of conduct or transition of operations is interfered, those who are involved will be charged severely.

The restructuring process is a road with many hills to overcome. On the other hand, it is a task we have to tackle for the future well-being and prosperity of our economy.

We have already formulated an underlying framework for corporate and financial restructuring. What is left to be accomplished is in the hands of, among others, the government, corporations and financial institutions. I trust that I can rely on the pro-active cooperation of involved parties in this regard.