FSC Holds Meeting to Check Financial Market SituationOct 18, 2023

The Financial Services Commission held a meeting with the Financial Supervisory Service and industry representatives on October 18 to review financial market situations, potential risk factors and ways to handle them, chaired by FSC Vice Chairman Kim So-young.


At the meeting, the authorities shared the same view that there are ongoing risk factors in financial markets due to the possibility of continuing high interest rates caused by a prolonged policy tightening in the U.S. and uncertainties surrounding the Israel-Hamas conflict. Therefore, the FSC, the FSS and financial industry groups agreed to maintain strong communication and cooperation.


Despite these downside external risks, Vice Chairman Kim said that the domestic financial market conditions appear to be stable and that it is very unlikely that market situation will abruptly turn unstable as in the previous year since there are less uncertainties about the interest rate expectation in major economies and the financial institutions’ liquidity and risk management conditions have been improved compared to a year ago. However, as it is always possible that an external shock—such as the one caused by the Israel-Hamas war—can deepen market anxiety when combined with vulnerabilities in domestic markets, Vice Chairman Kim said that it is necessary to continue to proactively deal with the vulnerable areas in domestic financial markets. With regard to the uncertainties surrounding the Israel-Hamas conflict, Vice Chairman Kim urged financial institutions to stay vigilant and secure a sufficient level of foreign currency liquidity to be adequately prepared.


At the meeting, the authorities also discussed ways to avert excessive money moves in the financial sectors in the final three months of the year as competition to win over more deposits toward the end of the year led to market instability last year. In this regard, from September this year, the FSC and the FSS held a series of meetings with the financial sectors to check the likelihood of excessive money moves in the fourth quarter of this year and discuss ways to prevent it.


To ensure that excessive competition to win over more deposits does not take place between financial institutions in the final three months of this year, the authorities announced that the following measures will take place. First, to ensure that banks are not heavily relying on deposit-taking to meet their operational needs, banks will be allowed to issue bonds more flexibly in accordance with each individual bank’s situation. After the end of October last year, banks’ bond issuance was kept to minimum levels to help to stabilize the bond market situation. In this regard, the banking sector agreed to flexibly adjust the volume and period of their bond issuance based on the market situation to prevent potential stress in the bond market. Second, the liquidity coverage ratio (LCR) in the banking sector, which was previously decided to be maintained at 95 percent until the end of this year, will continue to remain at the same level (95 percent) until June 2024. A normalization of banks’ LCR regulation will then start to phase in from July 2024 in principle, but the final decision on this will be made after considering market situation in the second quarter of 2024. The decision to keep banks’ LCR at 95 percent for six more months is to avoid the potential of banks issuing bonds at an excessive level to meet the increased LCR requirement or the possibility of banks engaging in excessive competition over deposit taking. The LCR requirement (95 percent) for the first six months of 2024 will be finalized at an FSC meeting in November or December 2023. Third, to ease the possibility of year-end concentration of payments for the defined benefit type pension plans, the authorities will continue to actively encourage the financial sectors, public institutions and large companies to make their pension contributions in installments and spread out maturities. The concern over excessive money moves in the retirement pension market has subsided in large part compared to the previous year. Nonetheless, the authorities will continue to closely monitor the market to ensure that there is no excessive competition taking place.


FSC Vice Chairman Kim said that the eased rules intended to prevent excessive competition between financial companies should not be used as a means for the race to boost assets and external growth. While asking financial companies to refrain from engaging in excessive competition, Vice Chairman Kim said that the authorities will strictly respond to selfish behavior disturbing order in the money market.


* Please refer to the attached file for details.