Financial stability is a prerequisite to innovation and inclusive finance policies. FSC maintains close market monitoring for any signs of market volatility and works to ensure stability in the financial markets. There are risk factors originating from abroad and from within. FSC focuses on making our economy more resilient from external shocks, such as a disruption in the global supply chain, and supporting Korea’s material, component and equipment industries to help boost their global competitiveness. Internally, FSC is closely monitoring the trends in household debt and seeking reforms to corporate restructuring in order to prevent domestic risk factors from turning into systemic risks. Policies aimed at increasing financial stability also include enhancing fairness in the financial markets by introducing a comprehensive legal framework for the supervision of financial conglomerates, improving market discipline and promoting transparency in corporate disclosure and accounting practices.
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Dec 09, 2008
- Direction and Process of Corporate Restructuring
- BackgroundKorea’s financial markets have not been immune from the uncertainties prevailing in the global financial markets as the credit freeze and financial institutions loses continue to grow amid concerns that it would further deteriorate corporate liquidity and slowdown the real economy.A process that clearly sets out how the restructuring will be carried out and who it will affect would address the anxiety and uncertainty plaguing the markets through prompt and orderly restructuring.Restructuring DirectionCorporate restructuring will have a focus on saving companies, even though resolution would follow quickly for those companies deemed to be non-viable. Although industry-wide restructuring is not being ruled out, unlike the financial crisis in the late 1990s the current restructuring will center on individual companies and large business groups. Restructuring will commence alongside financial support for companies that are currently on the Fast Track or workout programs as a result of the temporary squeeze in liquidity.Restructuring ProcessCorporate restructuring will proceed under the discretion of the creditor financial institutions, but the Corporate Credit Support Task Force, the Council of Creditor Financial Institutions, and the Creditor Financial Institutions Steering Committee will also bear a part of the responsibilities along with the government.To lend support and add efficiency to the restructuring process, the FSC/FSS launched the Corporate Credit Support Task Force on November 28, 2008 and is now headed by the governor of the FSS.The Council of Creditor Financial Institutions is comprised of each respective company’s major creditor bank and others, which will discuss and decide restructuring process upon convening Council meetings. The creditor banks will categorize companies into four groups with A being normal, B temporary liquidity shortage, C distressed, and D in receivership. The major creditor banks will work through the Council of Cred
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Nov 25, 2008
- The Global Financial Crisis & Korea’s Policy Response
- IGE/IMF International Conference Luncheon RemarksThe Global Financial Crisis Korea’s Policy ResponseDr. Jun Kwang-Woo Chairman Financial Services CommissionGREETINGSDistinguished guests, and ladies and gentlemen,I am delighted to be with you this afternoon, and I thank IGE Chairman Kim Pyung-Joo and President Lee Young-Tak and Dr. Mahmood Pradhan from the IMF for organizing today’s conference and inviting me to speak. I also thank speakers and distinguished participants who are with us today.In light of the deepening distress in the global financial markets, today’s conference, entitled “Lessons from the Recent Global Financial Crisis: Its Implications for the World and Korea,” is both timely and of great interest to every one of us.So I am glad to join you and share with you my perspectives on how the financial crisis emerged, what lessons we can draw from it, and where we go from here. GLOBAL FINANCIAL CRISIS KOREAN ECONOMYThe global financial crisis started with collapsing asset prices followed by a debilitating credit crunch. Expansive monetary policy by the U.S. Federal Reserve since 2001 and a surge in foreign capital inflow since 2004 kept interest rates at record low levels.Financial deregulation also swept across the major developed countries beginning in the 1980s. During this time, capital market liberalization also picked up the pace among the emerging countries.This process ultimately led to sharp increases in financial institutions’ leveraged activities and asset inflation. In particular, as financial institutions increasingly employed aggressive asset securitization and complex derivatives to sustain high profit growth, a host of new risks began to weigh on the financial system. For their part, regulators did not fully grasp the situation and preempt the risks. And the global nature of the financial system meant that the systemic risks would be felt and shared by markets around the world.Domestic financial marketsWe are now getting clear i
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Nov 24, 2008
- Statement by the FSC on the BOK's Liquidity Support
- The FSC highly commends the Bank of Korea’s recent preemptive decision to provide liquidity support to companies investing in the Bond Market Stabilization Fund (BMSF). It is intended not only to stabilize the financial market in general, but also to help implement the BMSF in particular, through close cooperation with the government. It is thought that the decision will ease financial companies’ efforts in raising funds for their investments along with any worries of establishing liquidity in the bond market. Thus, the government plans to speedup the process of building the BMSF. Through careful discussions between financial companies, a decision will be made on the participating institutions, the total investment amount, and the specific amount shared by each institution. The BMSF will be set in motion very shortly. The participating institutions will mainly be composed of banks, insurance companies, and securities companies.As already announced, the primary purpose of the Fund is to provide liquidity to quality corporations that are experiencing temporary liquidity shortages due to the current market credit crunch. P-CBOs that have been credit-enhanced by KODIT and KIBO, high-rate ABCPs based on Project Financing, credit financing bonds, and corporate bonds will be the first to be considered on the purchasing list. The issuers will be requested to make their own restructuring efforts when necessary. The details of fund composite, the managing institution, and the priority of trade will be shortly decided after discussions between the participating parties. The Financial Services Commission (FSC) and the Financial Supervisory Services (FSS) will oversee operations from the beginning to ensure investor protection and market stability. Mr. Jun Kwang-Woo, the FSC chairman, has requested that the vice-chairman start meeting with related financial associations and the FSS as of Nov. 25th to discuss detailed plans to propel the project as soon as possible.*Please re
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Nov 11, 2008
- Meeting with Heads of Major Banks
- On Wednesday November 5, 2008, a closed breakfast meeting was held between Kwang-Woo Jun (FSC Chairman), Jong-Chang Kim (FSS Governor) and the presidents of the 7 major Korean banks* . The main topic of discussion was centered on the financial support to be provided to SMEs. * Kookmin, Woori, Shinhan, Hana, Nonghyup, KDB, and IBK.Kwang-Woo Jun, Chairman of the FSC● The government has enforced a number of drastic measures* in order to overcome the global financial crisis including support to financial institutions and the real economy.●However, complaints are continuously being voiced by SMEs on the financial difficulties which are still present in their operations, despite efforts already being made by the government. - It is now time for banks to take positive steps to respond to government efforts.●From this moment on, presidents of banks are requested to take particular interest in the operations of lending funds to SMEs. This effort should be felt by the SMEs.- In particular, it is hoped that the Fast Track Program launched for SMEs are effectively implemented as soon as possible.●Banks need to provide support to sound SMEs temporary experiencing financial difficulty and to play an active role in starting a chain reaction of improving the financial soundness of banks and of accelerating the recovery of the real economy.- The most effective method of stabilizing the financial system is to minimize the number of SMEs going bankrupt and to prevent the real economy from falling into a recession.●Although there are concerns over whether the financial soundness of banks maybe compromised if support to SMEs and vulnerable sectors are expanded,- The government has taken preemptive measures in expanding the capacities of state-owned banks and credit guaranteeing institutions such as the Korea Credit Guarantee Fund and the KIBO Technology Fund to strengthen the risk absorbing capability of the banking sector; - The government intends to continually encourage the
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Nov 03, 2008
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Oct 30, 2008
- A Decision to Reinforce the Elimination of Malignant Rumors in the Stock Market
- In early September, the Financial Services Commission partnered with other stock market related government agencies to form a Joint Countermeasure Task Force to tackle the recent widespread circulation of malignant rumors regarding the Korean stock market. An unspecified number of rumors have caused an increase in the Korea Exchange to request public inquiries of corporations to verify the nature of the rumors. Moreover, the rumors have been thought not only to disturb the fair trading environment but also to have been the sources for the plunge in certain stocks. There is also suspicion that reports containing negative outlooks from foreign analysts are connected to the initiation of short-selling and market correction. Many of these rumors have been found to be without grounds, thus causing greater concern and sparking the urgency for the development of countermeasures to seek and prevent the sources of the rumors.Implementation Plan1. Joint Countermeasure Task Force● The Expansion of the Countermeasure TeamThe Countermeasure Team which was previously run solely by the FinancialSupervisory Service (FSS) has been expanded and renamed as the JointCountermeasure Task Force to include the cooperation of the Korea SecuritiesDealers Association (KSDA), the Korea Listed Companies Association (KLCA),and the KOSDAQ Listed Companies Association (KOSDAQCA) as of September,2008.According to interviews with market analysts and personnel from the exchange, thetask force is proving to be effective in the prevention of malignant rumors.●The Operation of Call CentersSeveral call centers have been put in place to receive reports on malignant rumors,with rewards provided for genuine leads on rumors that are potentially harmful andwithout grounds.The FSS is responsible for investigating the sources of rumors and monitoringpress releases, analyst reports, various investment websites, and the actualexchange floor.Corporations have been requested to actively make voluntary public re
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Oct 29, 2008
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Oct 19, 2008
- Proposed measures to overcome uncertainties in the international financial markets
- 1. Current SituationLehman’s bankruptcy filing (September 14th) sparked a chain reaction that sent globalcredit markets into disarray. Concerns have been spread around the world that loomingcredit crunch and slowdown of the real economy may be protracted. Finding a solutionout of the global credit crunch and economic uncertainties of the global economy willtake quite some time.Consequently, the governments of major economies have made efforts to coordinatetheir policy responses to the crisis and have introduced unprecedented and strongmarket stabilization measures.Despite the recent credit crisis, Korea’s real economy and its financial sector are sound.Exports show a steady growth and conditions of the banking sector remain healthy. Byvarious international standards, Korea’s foreign exchange reserves are sufficient.2. Proposed policy responsesAs other major economies start providing guarantees to inter-bank loans, the Koreangovernment will take similar measures to avoid placing domestic banks at acomparative disadvantage in terms of overseas funding and to allay fears in thefinancial market. The government will pursue market stabilization policies in apreemptive, decisive and sufficient manner to minimize the total cost of implementingthe proposed measures.① The Korean government will provide guarantees to Korean banks' external debt after securing approval of the National Assembly. When Korean banks or its overseasbranches take upon external debt from October 20th this year to June 30th, 2009, thegovernment will offer guarantees to the debt for 3 years. Initially, Korea DevelopmentBank or Korea Eximbank will provide guarantees starting from October 20th until thegovernment wins approval of the National Assembly. After securing the approval, thegovernment will take over the task of providing guarantees.* The total value of guarantees will be capped at USD 100 billion. Domestic banks’external debt reaching maturity until the end of June, 2009 is estimated t
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Oct 23, 2007
- FSC/FSS Announces "Roadmap for Advanced Financial Supervision" Aimed at Taking Korea’s Financial Supervision to the Next Level
- The Financial Supervisory Commission and the Financial Supervisory Service announced the formation of Committee for Advanced Financial Supervision jointly headed by Chairman/Governor Kim Yong-Duk and Vice President Choi Woon-Youl of Sogang University and the release of “Roadmap for Advanced Financial Supervision” following the Committee’s first meeting on October 22. The roadmap is a product of a public-private sector collaboration involving the FSC/FSS and 30 private sector representatives and experts from the academia, research institutes, the financial services industry, and civic organizations.The roadmap was initiated with the acknowledgement that the supervisory system— including the traditional approaches and practices—as well as the supervisory authorities’ organizational structure and human resources management has not satisfactorily kept up with the demands of the rapidly evolving market and is thus in need of change. The announcement of the roadmap, which coincides with the tenth anniversary of the creation of the FSS as a fully integrated financial supervisory authority, also comes amid a growing recognition that next three years may well prove pivotal for Korea’s prospect for emergence as Northeast Asia’s financial hub.Key Objectives under the RoadmapThe roadmap consists of five key policy objectives with 100 tasks (grouped into 12 areas) to be completed within the next three years as well as 30 performance measurement indices. The five key policy objectives outlined in the roadmap are (1) a fundamental shift in financial supervision, (2) responsive supervision, (3) support for business autonomy and innovation of financial institutions, (4) consumer and investor protection, and (5) confidence and trust in financial supervisory authorities.1. A Fundamental Shift in Financial SupervisionA fundamental shift and reorientation of financial supervision will be pursued. Currently, financial supervision takes a highly specific, rule-based approa
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Mar 16, 2007
- Road Map for the Adoption of International Financial Reporting Standards
- The Financial Supervisory Commission held a ceremony together with Korea Accounting Institute on Thursday, March 15, to mark the announcement of the road map for the adoption of International Financial Reporting Standards (IFRS). Mr. Yoon Jeung-Hyun, Chairman of the FSC, gave the keynote address at the ceremony and noted that the road map marked a milestone in Korea’s embrace of global accounting standards. A number of dignitaries, including Sir David Tweedie, Chairman of the International Accounting Standards Board (IASB), and Mr. Tatsumi Yamada, a member of the IASB Board, also attended the ceremony to offer congratulatory remarks.Background of the IFRS road mapMuch progress has been made with the efforts to improve the accounting standards and strengthen the oversight of corporate financial reporting in the years following the 1997 financial crisis. But it has been generally assumed that the level of confidence of foreign investors and others in Korea’s corporate accounting has not matched the efforts undertaken thus far, in part because of accounting standards that differ from IFRS and other globally prevailing standards. With the globalization of capital markets and a growing need for accounting consistency worldwide, the road map the FSC announced on March 15 represents a major step forward that will significantly improve the comparability, the reliability, and the transparency of Korea’s corporate financial reporting in many meaningful ways.Outline of the IFRS road mapFinancial reporting under IFRS will be made mandatory for all listed companies.Simplified accounting procedures will be permitted for unlisted companies to avoid any undue compliance cost. Unlisted companies may also elect to issue financial statements under IFRS, but once IFRS is elected it may not be rescinded and replaced.Financial statements under IFRS may be reported beginning in 2009 (excluding financial service companies) and will be made mandatory for all listed companies beginning
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Mar 09, 2007
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Mar 05, 2007
- Asset-Liability Analysis of Domestic Banks: 2006
- An asset-liability analysis of domestic banks by the FSS shows bank assets totaled KRW1,191 trillion (average account balance basis) for 2006, up 11.0% or KRW118 trillion from KRW1,073 trillion for 2005. Loans and securities made up the bulk of the assets with the proportion of loans increasing from 67.6% to 68.3% and that of securities falling slightly from 21.6% to 20.9%. A 17.9% jump in loans to small-and medium-sized companies along with a 14.4% increase in housing loans during the year mostly accounted for the changes. On the liabilities side including equity, the proportion of deposits dropped from 53.4% a year earlier to 49.6%. The rest were mostly made up by debt issues (15.4%), borrowings (13.8%), and certificates of deposits (5.6%).An increase in loans and a drop in securitiesBank loans totaled KRW879.9 trillion, up 16.9% (KRW127.1 trillion) compared with 8.4% for 2005. In particular, loans to small- and medium-sized companies rose 17.9% (KRW45.9 trillion), a marked increase from 5.1% for 2005 and 2.6% for 2004. Household loans, led by housing loans, increased 13.5% (KRW40.8 trillion).Securities, on the other hand, rose 5.1% (KRW14.9 trillion) to KRW308.6 trillion, compared to 17.4% (KRW43.6 trillion) increase for 2005.Declining share of deposits as source of bank fundsThe source of funds for increased loans in 2006 came more from debt issues and CDs, which jumped by KRW38.0 trillion and KRW13.7 trillion, respectively, than from deposits. The proportion of deposits as a source of funds fell in 2006, as did in 2004 and 2005.In particular, as a result of the growth of CMA and other short-term, higher-yield products from non-banking financial institutions as alternatives to bank deposits, the proportion of demand deposits, savings deposits, and other low-interest deposits as a source of funds continued to drop in 2006.Continuing rise of loan-to-deposit ratioWith robust loans and sluggish deposits, the loan-to-deposit ratio of domestic banks showed a continued
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Feb 02, 2007
- New Disclosure Measures for Foreign Securities Issuers
- The Financial Supervisory Service announced several new measures it plans to adopt in order to fine-tune disclosure regulations on foreign securities issuers toward global standards amid growing interest among foreign companies to make public offerings or list in Korea. The FSS also plans to issue a new publication entitled “Guide to Stock Offering and Listing by Foreign Issuers” that explains the stock offering and listing processes and related regulations (in Korean).Regulations on public offering and listing by foreign issuers have been continually amended and fine-tuned to global standards since 2005. They include primary listing of foreign companies and foreign holding companies along with globally accepted listing standards (Dec. 23, 2005), exemption from mandatory IPO allotment (20%) to employee stock ownership plan (Feb. 15, 2006), mandatory designation of domestic agent for investor protection (Sept. 13, 2006), and simplified reporting format for foreign issuers (Jan. 24, 2007).New Disclosure Measures for Foreign IssuersThe FSS is planning to adopt several globally accepted investor protection measures in response to public stock offering plans by foreign entities that are incorporated as holding companies offshore in places such as Bermuda and Cayman islands.Disclosure on subsidiary unitsFinancial and non-financial disclosures are to be provided on a consolidated basis for the subsidiary units of offshore holding companies in order to ensure appropriate disclosures on the business activities of subsidiary units that effectively represent the activities of the holding company.Financial disclosures include financial statements and audit opinion from an independent external auditor. Non-financial disclosures include disclosures on key business activities, board of directors, affiliated companies, management makeup, and transactions with related parties.Disclosure on corporate governance structureDisclosures on the corporate governance structure of offshor
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Jan 05, 2007
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Dec 23, 2004
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Nov 04, 1999
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Dec 15, 1998
- Strengthening Prudential Supervision & Regulations
- Ⅰ. Introduction1. Since the 1980s, while financial activities have become more complex and diverse at home and abroad under financial liberalization and globalization, uncertainty in financial markets has rapidly increased. Financial institutions became widely exposed to risks such as credit risk on which they had already begun to focus concern, including interest rate risk, foreign exchange risk, market risk and country risk. At the same time, as the volume of financial derivative transactions has sharply increased mainly due to the development of information technology, they have assumed even further risk.2. As we have seen through the example of the Barings case, the stability of the financial industry as a whole has deteriorated due to derivative transactions and their contagion effect. To cope with this instability, financial institutions have taken care to develop various advanced financial commodities, to establish the consolidated risk management system on the basis of market risk, and to employ elaborate risk management techniques, including Value at Risk (VAR).3. As advanced financial supervisory authorities such as the Office of the Comptroller of the Currency in the United States and the Financial Services Authority in the United Kingdom have changed their supervisory policies into "risk-focused supervision", many authorities in other countries are following suit. International organizations such as the Bank for International Settlements (BIS), the International Organization of Securities Commissions (IOSCO) and the International Association of Insurance Supervisors (IAIS) are trying to establish and employ international standards related to risk management to secure the soundness of financial institutions. Perhaps the best example is the Core Principles for Effective Banking Supervision of the BIS.4. The need for stronger financial supervision is clear. Although Korean financial institutions have been able to continue to pursue high growth volume-orie
