FSC announces legislative notice for fast-track resolution regime

Resolution period to be cut from 150 days to three or four days

The Financial Services Commission office at Government Complex Seoul in Jongno-gu, Seoul [Yonhap]
The Financial Services Commission office at Government Complex Seoul in Jongno-gu, Seoul [Yonhap]

South Korea's financial regulator is moving to introduce a fast-track resolution regime for troubled financial institutions, modeled on responses to crises like the Silicon Valley Bank collapse, to prevent large-scale bank runs from spreading instability across the broader financial system. Under the new framework, regulators would swiftly suspend a firm's operations and complete resolution procedures — a process that currently takes around 150 days — within three to four days, including weekends and public holidays.

The Financial Services Commission announced Thursday it would pursue the introduction of the fast-track financial institution resolution regime.

The regime is designed as a fast track that allows regulators to rapidly carry out resolution procedures — including business suspension — when a financial institution is insolvent or at risk of becoming so.

Once in place, the system would enable swift execution of resolution measures under the Act on the Structural Improvement of the Financial Industry, including suspension of operations, suspension of executives' duties, appointment of administrators, contract transfers, third-party acquisitions, capital reductions through share cancellation or consolidation, and license revocations.

While standard resolution procedures typically take about 150 days, the fast-track regime would allow the process to be completed within three to four days.

The FSC said it would take steps to protect the rights of creditors and other stakeholders even under the accelerated process, and planned to put in place measures ensuring that losses incurred under the fast-track regime do not exceed those that would result from ordinary liquidation procedures.

The regime would apply not only to already-insolvent institutions but also to those deemed at risk of insolvency — particularly cases where a firm's financial distress could trigger a large-scale bank run similar to the SVB crisis or significantly undermine financial market stability.

"We determined that using capital impairment as the sole trigger would make it difficult to respond to a sudden, rapid bank run," an FSC official said. "That is why we expanded the scope to include firms at risk of insolvency."

Institutions eligible for the regime are those subject to the Act on the Structural Improvement of the Financial Industry that can receive support from the deposit insurance fund — namely banks, insurers, securities firms, savings banks and financial holding companies. Credit-specialized financial companies, asset management firms and trust companies were excluded, as they fall outside the Depositor Protection Act and carry a lower risk of bank runs.

The FSC has operated a task force on the fast-track resolution regime since 2023, with the SVB collapse — which triggered a sudden, massive bank run in the United States — serving as the direct catalyst. Using its own rapid resolution framework, the US government established a bridge bank within four days and transferred all deposits, minimizing losses to depositors.

"If this framework is institutionalized, we expect it will preemptively prevent the rapid deterioration of a financial institution from spreading into systemic risk, and contribute to financial market stability and consumer protection through swift resolution in times of crisis," an FSC official said.

The FSC plans to issue a legislative notice in November for amendments to the Act on the Structural Improvement of the Financial Industry and the Depositor Protection Act incorporating the new regime.


hyuk@heraldcorp.com