9/19/11 (AEIN) The government of South Korea suspended the operation of seven banks on Sunday, prompting many people to withdraw funds from their accounts at other banks. Officials sought to reassure the account holders and discourage large withdrawals, the Northeast Asian country's state-run news agency reported Monday.
Seven banks with over 600 thousand customers were suspended due to massive debts and insufficient funds as a result of badly performing loans on homes and other properties. The news agency also reported that regulators uncovered a number of large illegal loans made to bank shareholders by an undisclosed number of institutions.
This led numerous South Koreans to panic and withdraw some or all of the funds in their bank accounts on Monday. About 100 government officials visited banks across the country to reassure customers and urge them not to withdraw "excessive" amounts of money. The government guarantees 50 million won (about $44 thousand dollars) per account.
The Chairman of the Financial Services Commission visited a bank in Seoul and deposited twenty million won (equivalent to $17.6 thousand dollars) as approximately one-hundred concerned account holders looked on. He urged them not to worry about the safety of their funds, despite the bank's links to one of the suspended institutions.
South Korea has suspended sixteen banks so far during 2011. For comparison, seventy-one bank failures have occurred in the United States in the same time period, according to CBS News. During the previous year, 157 American banks failed, costing the U.S. federal government a total of twenty-one billion dollars.
Stocks went down due to the banking concerns and other economic issues. President Lee Myung-bak said on Monday that the country must prepare for the "worst case situation" regarding Europe and Greece, according to the state news agency. Bank of Korea data indicated that 103 corporations went bankrupt in August. High inflation and household debt also remain serious concerns.