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Nov 22, 2010
- Countermeasures against KOSPI's Sudden Plunge on Nov. 11
- BackgroundThe KOSPI index plunged 48 points in the last ten minutes before the market closed on November 11, the options expiry date of the month, as foreign investors cleared their arbitrage positions by selling off KRW2.4 trillion worth of shares.Out of the sell-off worth KRW 2.4 trillion, it turned out that 97% of sell orders were made through a single trading desk. We, the FSC/FSS and Korea Exchange, are currently investigating whether the massive sell-off through the brokerage involved any alleged act of unfair trading.We are also probing into a local investment company, WiseAsset, who suffered huge losses from options trading on November 11, with particular focus on any illegality of the company’s asset management and its internal risk management system.Fluctuations in stock prices are inherent part of capital markets; however, severe volatility over a short period of time caused by a few market forces could leave individual investors unprotected and undermine investors’ credibility in Korean capital markets. In this respect, we plan to thoroughly investigate causes of the incident and come up with needed measures to make capital markets in Korea more stable.Upon a thorough investigation on whether there was any act of unfair trading involved and whether the financial investment company properly managed its investment risks, any violation of relevant laws and regulations will be dealt with strict sanctions to prevent a recurrence of a similar event.Measures to comeThe FSC/FSS will thoroughly review vulnerabilities of Korea’s capital markets as revealed on Nov. 11 and take prompt actions to bring immediately needed reforms to the current market system and practices. Depending on the results of the investigations, we will come up with follow-up measures for the longer term. A. Immediate actions1. Strengthening brokerage firms’ settlement risk managementBrokerage firms are exposed to the so-called settlement risk because they are the first to take respons
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Oct 05, 2010
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Jul 30, 2010
- Privatization Plan for Woori Financial Group
- The Public Funds Oversight Committee has held the 22nd Meeting today to finalize its plans to sell the remaining shares of Woori Financial Group (WFG) held by the Korea Deposit Insurance Corporation (KDIC), where a consensus has been reached that after successfully making two block sales, once in November 2009 and once in April 2010, totaling 16% of WFG, bringing the total amount of shares held by the KDIC down to a 50% level, an appropriate condition has been set to finalize the privatization of WFG.The privatization will be carried out with the three basic principles: maximizing recovery of injected public funds; making an early privatization; and contributing to sound and productive advancement of the financial industry.(1) Method of privatizationIn line with the three basic principles, the sale of WFG shares will be done through two steps of open competitive bidding process by domestic and foreign investors; first, by preliminary bidding; and second, by final bidding.(2) Simultaneous sale of WFG and regional banksBoth the shares of WFG and the shares of regional banks held by WFG (Kyungnam Bank and Kwangju Bank) will be sold separately but up for the bidding at the same time.Although the two regional banks are under WFG, it has been viewed as more effective to sell them separately due to them not having an integrated data processing network with WFG and with low level of synergy effect. Moreover, because their value would be greater when sold separately taking into account their regional focused businesses.However, the bidding will be carried out simultaneously to prevent any delay in the overall privatization process.The sale of regional banks will be for 50% plus ne share or done through a completemerger. And the actual amount of shares of WFG to be sold or whether it will be done through a merger will be determined and finalized with close discussions with the to-be- selected sales advisory firms. (3) Selection of sales advisory firmsConsidering the size and
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Jun 14, 2010
- 2ND Round of Strengthened Regualtion on Financial Institutions' FX Soundness
- BackgroundSince the government implemented the new rules to strengthen regulations on financial institutions’ FX soundness in January 2010, FX liquidity ratio has risen, the management of FX derivatives trade has been strengthened, and the overall FX soundness of banks has improved. However, the regulation to limit banks’ FX liquidity ratio has been applied to only domestic banks, not to local branches of foreign banks; therefore, foreign banks are still exposed to risks of mismatch between long-term assets in the Korean won and short-term borrowings in foreign currency.**Please read the attached file for details.Plans1. Regulations on domestic banks will be tightened to raise FX liquidity ratio and Mid-to 1. Regulations on domestic banks will be tightened to raise FX liquidity ratio and Mid-to FX liquidity ratio internally on a daily basis and report to financial authorities on a monthly basis. Securities held to maturity in foreign currency as well as foreign currency borrowings will be included when calculating the ratio of mid-to long-term financing in foreign loan portfolios. The ratio will be raised from 90% to 100%.2. The government will provide guidelines for local branches of foreign banks so that they can manage FX liquidity risk on a voluntary basis. Under the new guidelines, they will be advised to voluntarily manage their FX liquidity risks and acquire safer and longer term FX funding sources. However, some of the standards will be waived if their head office submits a letter of commitment to provide FX liquidity for its branch in Korea at times if needed. Implementing the new guidelines for local branches of foreign banks, a three-month grace period will be given to smooth out the transition. In managing FX liquidity risk, they will be subject to basically similar rules applied to domestic banks such as currency-specific liquidity risk management, diversification of funding source, and contingency funding plans. The guidelines will reflect opinions
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Jun 04, 2010
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Jun 03, 2010
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May 19, 2010
- FSC Chairman's Speech - Korea Economic Forum
- Ⅰ. GreetingsGood morning, ladies and gentlemen!I would like to begin with my thanks to Mr. Song Philho, CEO of JoongAng Ilbo, Mr. Lho Cholsoo, publisher of JoongAng Daily, and Mr. Chung Ki-young, president of Samsung Economic Research Institute, for inviting me to speak at today’s forum.I also wish to acknowledge and thank honorable ambassadors, business leaders, and members of the foreign press who are with us today.The global financial crisis, unprecedented in both scale and scope, now appears to have run its course.Troubling new developments in the euro-zone economies, however, remind us that there are still many post-crisis uncertainties we must contend with.So, once again, we must wonder where the euro-zone crisis is headed, and what impact, if any, it may have on Korea’s financial markets and the economy.And it is my hope that today’s forum will shed new light on some of the questions that are on everyone’s mind.This morning, I would like to use my time to outline major financial policy issues we confront and tasks that lie ahead.Ⅱ. Korea’s Financial Policy: Current Issues TasksThere is no question that the global financial crisis forced us to reflect on our past and take stock of what went wrong.The crisis was, in many ways, a heavy blow to our conventional wisdom: namely, a blind faith in market efficiency, innovation and risk-taking.Now, with the benefit of hindsight, the international community is working to introduce wide-ranging financial regulatory reform measures.I believe we must prepare wisely for what lies ahead and maintain our vigilance on changes that are unfolding in the global financial environment.For our part, we are going to formulate financial policies within the context of the new global financial order with a focus on enhancing Korea’s financial capabilities.Addressing Destabilizing FactorsFirst and foremost, we will continue to respond swiftly and preemptively to destabilizing market developments to put out the fire befor
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May 10, 2010
- Contingency Plans for Southern Europe's Financial Crisis
- Despite the EU-IMF rescue package* for Greece, financial markets faltered amid fears that southern European counties’ debt crisis could spread. Stock markets in the U.S. and Europe fell, and the KOSPI Index on May 6 fell 2% as well. The values of the US dollar and the yen against the Korean won surged. The US dollar against the Korean won on May 6 rose by KRW 25.8, and the yield of 3-year government bonds went up by 0.08%p.However, southern Europe’s debt crisis is expected to have only a limited impact on the Korean financial market because the domestic financial institutions’ exposure to the region is insignificant. As of end-2009, Korean financial companies’ exposure to southern European countries – Greece, Spain, Italy, and Portugal – is USD 640 million, just 1.2% of the USD 52.8 billion total external exposure. The total borrowings of Korean banks from those countries are only USD 390 million.As market concerns over southern Europe’s debt crisis and its contagion to Europe as a whole might persist for a while, the FSC plans to strengthen its monitoring on financial markets and European capital flows. To this end, the FSC and the FSS will closely monitor capital inflows and outflows and thoroughly examine domestic banks’ foreign liquidity soundness and external borrowing conditions.The FSC will utilize hot-lines and other communications channels with domestic banks to promptly detect and preemptively address market problems. We will also examine and complement individual banks’ contingency plans to raise their capital.Furthermore, in order to ease concerns in financial markets, the FSC will closely work together with the Ministry of Strategy and Finance (MOSF) and the Bank of Korea (BOK).At a global level, the Financial Stability Board (FSB) is expected to closely monitor the future developments of the Greek rescue package and promote global coordination through sharing information on each country’s fiscal and economic conditions.*Please refer
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Apr 20, 2010
- Impacts of the Goldman Sachs Case on Financial Markets
- 1. Impacts on domestic and overseas financial marketsIn the wake of the civil action by the U.S. Securities and Exchange Commission (SEC) against Goldman Sachs on April 16, stock markets in the U.S. and Europe fell, and prices of the U.S. Treasury bonds and dollars rose.Domestic markets were also affected by the Goldman Sachs case to a limited extent. The KOSPI dropped by 30bps.Foreign investors sold in the market, and the U.S dollar against the Korean won rose.As of end-2009, domestic financial institutions hold the outstanding securities of USD 350 million issued by Goldman Sachs. That accounts for only 1.8% of foreign securities held by domestic financial institutions (USD 19.04 billion) and does not include a synthetic CDO related to the case.2. ImplicationsThe Goldman Sachs case is expected to bring only a limited impact on Korean financial markets considering the fact that Korean financial institutions hold no CDO at issue and only a small amount of other securities issued by Goldman Sachs. Also, under Korea’s Asset-Backed Securitization Act, it is virtually impossible for special purpose companies (SPCs) to issue synthetic CDOs, similar to the controversial product in question; therefore, it is unlikely that domestic financial institutions wouldexpose investors to similar risks.3. Policy responsesThe FSC will closely monitor any possibility that similar lawsuits would be filed worldwide and domestic financial companies might be involved. At the same time, the FSC will continue to improve investor protection systems such as prior reviews* for OTC derivatives. Currently, amendments to the FSCMA enforcement decree are underway to enforce the prior review system for OTC derivatives in June 2010, and the Korea Financial Investment Association(KOFIA) is formulating rules of prior reviews.*Prior reviews of OTC derivatives, introduced by the amended FSCMA in March 2010, are conducted by a review committee of the KOFIA. Products subject to a prior review include OTC
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Apr 07, 2010
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Mar 31, 2010
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Mar 26, 2010
- Regulation on Banks' Loan-to-Deposit Ratios
- In the 2010 Financial Policy Agenda announced in December 2009, the FSC unveiled its plans to adopt banks’ loan-to-deposit (LTD) ratio as one of its bank liquidity guidance ratios, which aims to encourage sound management of banks and alleviating factors driving the asset competition among banks. As a step to follow up with the announcement, the Regulation on Supervision of Banking Business is slated to be amended to employ banks’ liquidity or LTD ratio to measure bank management soundness after a notice and adjustment period between March 26 and April 15.BackgroundFor the past few years, expansion in mortgages and SME loans triggered off an asset competition among banks. As a result, signs of instability in banks’ liquidity became apparent during the 2008 financial crisis as bank debentures and other market-based capital served as funding sources while resources that are required to support stepped up lending were not backstopped with deposits.Although domestic banks’ LTD ratio was around 100% at the end of 2004, the ratio had risen sharply between 2005 and 2007 reaching 127.1% at the end of 2007. However, following the persistent guidance from the regulator to reduce the ratio since the second half of 2008, banks’ LTD ratio had fallen to 110.4% as of end-January 2010.Proposed ChangesThe planned changes in the regulation will apply to commercial banks in principle having won-denominated loans in excess of KRW2.0 trillion. This will include foreign bank branches, of which only HSBC will apply with KRW3.3 trillion in won-denominated loans as of December 2009, and the National Agricultural Cooperative Federation (NACF), the only one among the special purpose banks given the policy-driven nature of their loans.The ratio is calculated through the following method, excluding CDs: Loan-to-deposit ratio = won-denominated loans won/denominated deposits* * Demand deposits, savings deposits, time deposits (figures from bank balance sheets)The target for banks’ LTD
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Jan 28, 2010
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Jan 13, 2010
- Introduction of Foreign Investor Express Card
- The Financial Services Commission (FSC), the Ministry of Justice and the Fn Hub Korea (the Center) of the Financial Supervisory Service have agreed to issue the "Financial Investor Express Card" with an aim to increase the number of foreign executives of foreign financial institutions eligible for fast-track immigration lanes. Also, the Center has published the "Visa Immigration Guide for Foreign Employees of Financial Institutions" to help meet foreign employees' needs related to immigration and visa issues.Financial Investor Express CardWith the introduction of the Financial Investor Express Card, foreign executives of a Korean branch of a foreign financial firm will become eligible to use fast-track immigration lanes.So far, only the executives of a Korean subsidiary of a foreign-invested enterprise and the holders of the Investor Express Card1 have been permitted to use the fast track.However, to reflect the contribution of branches of foreign financial firms to the Korean economy and to help attract foreign investment, the three organizations have decided to expand the benefits of fast-track immigration lanes.The Financial Investor Express Card will be issued to deputy general managers or higher executives, holding a supervisory intra-company transfer (D-7) visa, of a Korean branch with an operation fund of KRW 7 billion or more.The FSC and the Center will complete the preparations by the end of January 2010 and begin to accept applications and issue the card from February. (Please call Financial Hub Korea at +822-3145-7171 for inquiries)The introduction of the card is expected to improve conveniences of foreign investors and promote foreign investment in the financial industry.Visa Immigration Guide for Foreign Employees of Financial InstitutionsTo make a better living environment for foreigners, the Center, with the cooperation of the Ministry of Justice, has been providing foreign employees of financial institutions and their families with supporting service
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Jan 11, 2010
- Progress on Improving Banks' Corporate Governance
- The global financial crisis has shed light on the importance of corporate governance in financial institutions. In particular, banks have been the major beneficiaries of government relief programs* such as government guarantee for bank deposits and foreign debts. However, as the OECD and the BCBS noted, banks’ board of directors often neglected their social responsibility by failing in risk management, pursuing short-term profits, and paying out excessive compensation. Against this backdrop, improving corporate governance in financial institutions, particularly in the banking sector, is being actively discussed at the global level. Direct financial regulations may bring about side effects by undermining financial inter-mediation and adding burden to financial consumers. In contrast, improving corporate governance minimizes the side effects and restores the public trust i n financial institutions to ensure that the financial sector can support the real economy and prevent the recurrence of crisis.An overview of global discussions1. OECDThe OECD reports, The Corporate Governance Lessons from the Financial Crisis (Feb. 2009) and The Corporate Governance and the Financial Crisis: Key Findings and Main Messages (June 2009), assert that corporate governance in financial institutions should be improved, citing that the boards of directors, particularly outside directors, involve problems such as the pursuit of short-term oriented profit, the payment of excessive compensation, and the failure of risk management, and also citing that the current system doe s not give shareholders enough power to hold the management in check. To address these weaknesses, the OECD is working with the FSB to publish a set of recommendations on improving corporate governance, Strategic Response to the Financial Crisis.2. U.K.Since the Turner Review point ed out the need to improve corporate governance, Sir David Walker has led an independent review of corporate governance in the UK banking ind
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Jan 10, 2010
- The 3rd FSB Plenary Meeting Report
- The FSC Chairman Chin Dong-Soo attended the 3rd FSB Plenary Meeting in Basel, Switzerland, on Saturday January 9. Chairman Chin checked how financial reform recommendations the G20 leaders mandated the FSB to make have been implemented and reaffirmed future directions and implementation schedules for financial reforms that will be taken by the FSB in 2010.In regard with the financial crisis, he assessed that as many related issues have been addressed and financial institutions have now easier access to liquidity and capital, thus many financial support programs have been stalled or curtailed. He, however, pointed out that despite the overall recovery from the crisis across the globe, the gap among various markets and individual financial institutions has been widening; therefore, he agreed that financial support for SMEs and othervulnerable sectors necessary to support the real economy should be sustained.Proposals to Stabilize the Foreign Exchange Markets in Emerging EconomiesWith respect to the “Proposals to Stabilize the Foreign Exchange Market in Emerging Economies,” endorsed at the G20 summit in Pittsburgh in September and the G20 finance ministers meeting in November, the FSC, prior to the meeting, distributed to the FSB members the report on the detailed background of the proposals and specific plans to implement. At the plenary meeting, the Korean government shared with the FSB members the report on the detailed background and policies that the Korean government introduced to enhance the soundness of foreign currency market and strengthen related regulations with the aim to reduce foreign currency liquidity risk.The report reasserted the need for international coordination to build a global financial safety net to protect emerging economies vulnerable to foreign currency liquidity risk. The report net to protect emerging economies vulnerable to foreign currency liquidity risk. The report help emerging economies reduce foreign liquidity risk by creating a
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Dec 16, 2009
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Dec 09, 2009
- AMCHAM Luncheon Speech
- Ⅰ. Introductory RemarksThank you, Mr. Chairman, for the warm welcome.Members of the American Chamber of Commerce, distinguished guests, and ladies and gentlemen!I am delighted to speak to you today, and I thank Chairman David Ruch and President Amy Jackson for arranging this very special gathering.I am also pleased to meet members of the U.S. business community here in Korea who joined us today.Most of all, as a representative of the Korean government, I thank AMCHAM for its commitment and dedication to advancing economic ties between the U.S. and Korea.I express my confidence that AMCHAM will continue to serve as a vital link that unites us and enhances our partnership.Ladies and gentlemen!I think it's fair to say that this year has truly been a wild ride.Now, the end of 2009 is almost upon us, and a new year is just around the corner.Today, I will use this occasion to look back at the major economic and financial policies put in place this year, and explore the tasks ahead of us.Let me first quickly review some of the recent economic and financial market trends.Ⅱ . Recent Economic and Financial Market TrendsThe global economy fell into a severe recession in 2009 as a result of a financial crisis triggered by the collapse of Lehman Brothers.But this was also a year of renewed optimism as the global economy hit the bottom and started to move into a recovery phase.Fortunately as well, the Korean economy bounced back quite rapidly in the first half of 2009.And this momentum continued into the second half, as the economy grew 3.2% over the previous period in the third quarter.In fact, the OECD recently declared Korea to be the fastest recovering economy among its members and revised upward its growth outlook for Korea.Korea's financial markets also rapidly returned to normal from the first half on the back of more upbeat growth prospect and global financial market stability.Key financial market indicators, including stock prices and CDS spreads, have also returned
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Dec 03, 2009
- UBS Korea CEO/CFO Forum 2009 Luncheon Speech
- Ⅰ. Introductory RemarksGood afternoon, ladies and gentlemen!Let me first thank Mr. Jae-hong Lee and Mr. Young Chang of UBS Korea for having me here today.It is also a great pleasure to see so many distinguished business leaders and investors together in one place.We are now coming to the end of 2009, and winter is almost upon us.It has been a year of both despair and hope.But, fortunately, this time around, we are not going to go through the bitter cold we had to bear at the height of the financial crisis last winter.The global economy has been gradually emerging from the panic of a year ago and there is hope ahead.Yet, new concerns, such as fears of another asset bubble and major economies' swelling fiscal deficits, are clouding the outlook for the world economy.In this context, I shall speak today about how the crisis has affected Korea and what the future tasks are for the Korean government.Ⅱ . Lessons from the Global Financial CrisisNow, many wonder what has been the secret behind Korea's vigorous recovery from the crisis.I would say that one unique contributing factor is our experience with a financial crisis a decade ago.This put Korea’s corporate and financial sectors in strong shape and enhanced the government's ability to manage the crisis.And yet, the latest crisis demonstrated that our past experience did not entirely work in our favor.Let me explain.The origin of the 1997 crisis can be traced to internal distortions and distresses built up during decades of rapid economic growth. In contrast, the latest crisis originated from outside Korea.Unlike the major economies that suffered from massive financial implosions, the Korean economy was on a firm footing with healthy corporate and financial sectors.Despite this, the impact of the crisis on Korea was disproportionately large because of the stigma from the 1997 crisis.Some overseas media and investors oddly took the view that a second financial crisis could occur in Korea.This sparked negative percep
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Nov 24, 2009
- KDIC sells its stake in Woori Finance Holdings
- On 24 November, 2009, the Korea Deposit Insurance Corporation ("KDIC") sold 56,420,000 shares (approximately 7.0% of the total shares outstanding) of Woori Finance Holdings ("Woori") in an after-market block trade sale prior to commencement of trading. The shares were sold to domestic and foreign institutional investors at a price of KRW15,350 per share, resulting in the recovery of KRW866 billion in public funds.Through this transaction, the KDIC has reduced its stake in Woori from 73% to 66%. To date, the KDIC has recovered KRW4.0 trillion of the total of KRW12.8 trillion in public funds it injected into Woori. The KDIC has actively sought to achieve an expedient privatization of Woori through minority stake sell-downs, but has faced difficulties in selling the stake as a result of a sharp decline of share prices amidst the ongoing global financial crisis.However, the recent sustained recovery in Woori's share price and other key factors has helped create a conducive market environment in which the sale could be contemplated. Given this, the KDIC sought and received approval from the Public Fund Oversight Committee for this block trade sale and was able to achieve a highly successful sale of a 7% stake to domestic and international investors.Through this transaction, the KDIC successfully achieved a timely recovery of public funds, underscored the government's strong commitment to the expedient privatization of Woori, and expects to provide future share liquidity in order to enhance the value of the residual stake and optimize future recovery of public funds.* Please refer to the attached PDF for details.
