Last Friday we reported that the soon to be quite pervasive spectacle of running to the bank only to find there is no money available, had spread to Korea. At that time only two banks were involved, although we speculated that "while the bank run at Busan was driven by capital inadequacy it may promptly spread to the entire banking system." Less than 3 days later, it has done just that. China Post reports that: "South Korea suspended operations at four more savings banks on Saturday after runs developed as customers rushed to get at their money despite official assurances the financial sector was secure." Gee whiz, looks like last week's promises that everything was contained were, gasp, lies? " The Financial Services Commission (FSC) said Saturday it was suspending three affiliates of Busan Savings Bank — Jungang Busan Savings Bank, Busan II Savings Bank and Jeonju Savings Bank — as well as Bohae Bank for six months each. “Considering recent waves of deposit withdrawals, available liquidity, remaining deposits and capacity to borrow, the FSC concluded that they might face a situation where they are unable to pay customers,” the FSC said." And in an almost verbatim transposition of our own Telepromptermarionette-in-Chief's admonition in March 2009 that "profit and earnings" ratios were now cheap or some other such garbage, the head of the Financial Services Commission Kim Seok-dong (not related to Bang Dae-Ho) "vowed to make a personal deposit of 20 million won ($17,864) in Woolee to convince depositors that the bank was financially sound." And if that doesn't work Korea can always rent Brian Sack out for a few days each week: truth be told, the US can easily cut down on the amount of weekly POMOs now that WTI is about to pass $100 (and Brent $110).
From China Post:
The Financial Services Commission (FSC) said Saturday it was suspending three affiliates of Busan Savings Bank — Jungang Busan Savings Bank, Busan II Savings Bank and Jeonju Savings Bank — as well as Bohae Bank for six months each.
“Considering recent waves of deposit withdrawals, available liquidity, remaining deposits and capacity to borrow, the FSC concluded that they might face a situation where they are unable to pay customers,” the FSC said.
The freeze may be lifted if the banks recoup their liquidity, it said.
The FSC on Thursday put a six-month block on the operations of Busan Savings Bank and its affiliate, the Daejeon Mutual Savings Bank, and announced steps to support others that may be hit by increasingly precarious-looking property loans.
Busan is the country's biggest savings bank, with assets worth 3.74 trillion won (US$3.4 billion).
Last month, regulators shut down Samhwa Mutual Savings Bank which became insolvent because of soured property loans.
Also, it appears that Korea is the next country to conduct stress tests which confirm rather conclusively that the entire banking sector is insolvent:
The FSC said on Thursday that 94 of the country's 105 savings banks meet capital adequacy standards and it did not expect any more suspensions in the first half of the year.
It was not clear if the three institutions suspended Saturday were among the 11 the FSC deemed to have inadequate capital.
And the brilliant response by Korea's version of the FDIC:
Kim Seok-dong, the chairman of the Financial Services Commission, flew to Busan yesterday to stem massive withdrawals from savings banks after his agency suspended another four over the weekend.
The port city of Busan has emerged as the epicenter in the savings bank crisis after operations of the Busan Savings Bank group were suspended due to a capital shortage.
Kim repeated his vow yesterday that no more savings banks would be temporarily closed in the first half of the year “if there are no excessive deposit withdrawals.”
But this failed to halt deposit withdrawals in Busan. More than 500 customers waited in line from 3 a.m. in front of Woolee Savings Bank to take out their money and the numbers grew to 1,000 by 9 a.m.
Kim vowed to make a personal deposit of 20 million won ($17,864) in Woolee to convince depositors that the bank was financially sound.
To simply - this is equivalent to Sheila Bair depositing a couple hundred G's of hard earned taxpayer money in the jaw of death, better known as Bank of America.
Yet while BofA in the US is supposed to hit $30 according to John Paulson by the end of 2011, not even Korean are falling for such bullshit anymore:
Depositors seem to have lost faith in the financial regulator’s statements because the FSC suspended operations of the four savings banks only two days after it suspended operations of Busan Savings Bank and its affiliate Daejeon Mutual Savings Bank on Thursday, despite suggesting that no further suspensions were likely.
In total, seven of the country’s 105 savings banks have been suspended.
“How can we trust the financial regulator?” said Lee Hyung-sup, a taxi driver, when he heard the news about the suspension of more savings banks.
Perhaps there is hope for the US: once the financial system implodes for good, instead of Marsians, perhaps it is the Koreans, who actually learn from their (and our) mistakes, who can come over here and bail us out one more time, only to let Bernie Bernanke prove to everyone that third time really is the charm when reflating the mother of all ponzi bubbles.