-
Oct 17, 2008
- Corrections, Clarifications and Explanations for October 14 Financial Times News Article “Sinking feeling”
- The Financial Services Commission and the Financial Supervisory Service issue the following corrections, clarifications and explanations for factual errors and questionable assertions made in the October 14 Financial Times news article “Sinking feeling.”*****Purpose of Finance Minister Kang Man-Soo’s meetings with U.S. business executives“Kang Man-Soo, finance minister, is taking his plea for dollars to Wall Street, where he is due to meet with executives of banks such as Citigroup and Morgan Stanley.”Minister Kang Man-Soo met with Mr. Stephen Roach, chief economist at Morgan Stanley, and Mr. Robert Rubin, the former Treasury Secretary, on Tuesday, October 14, for discussions on the global financial crisis and their market views and assessment. Minister Kang did not meet with Wall Street executives to plea for dollars as the article falsely asserted. He did not take his plea to Wall Street as the news article speculated.POSCO overseas bond offering“Posco, the steel maker, said last week it would sell $1bn of bonds overseas as part of efforts to stabilise the won.”In a press release dated October 10, POSCO announced that it is planning a US$1 billion oversea bond offering some time in the fourth quarter this year. The press release explicitly stated that the proceeds from the bond offering would be used for future investment and operating funds. It did not say that the proceeds would be used to stabilize the won as the news article erroneously reported.Remarks attributed to Finance Minister Kang Man-Soo“Mr. Kang recently told a parliamentary session that ‘apart from exports, everything—including investment, consumption, employment and the current account balance—is showing a trend similar to that seen during the [Asian crisis].”The quote attributed to Minister Kang appears to refer to one of the many remarks he made at a National Assembly hearing on July 22, 2008, in response to questions on the outlook for the economy from National Assembly m
-
Oct 14, 2008
- Briefing for Analysts
- 1. Total Foreign DebtRecent debts have largely been incurred as a result of bridge-financing (based on anticipated future returns) such as currency forwards. This type of financing has different characteristics to that of liabilities incurred to finance current account deficits which were prevalent prior to the Asian Financial Crisis.As of the end of June 2008, it is estimated that $151.8 billion out of a total of $419.8 billion of foreign debt by BOK will be not be subject to any repayment burdens, and thus reduce the actual foreign debt amount to $268 billion. The exclusion of debts which are not subject to any repayment burdens will result in an actual net foreign asset amounting to $154.5 billion.The current external debt ratio as of the end of June 2008 stands at 86.1%. However, the figure falls to 54.4% when foreign bank branches are excluded, significantly reducing external debt risks.2. External Debt by Sector A. Government Sector The bulk of the government sector debt ($51.8 billion out of $63.1 billion) consists of KRW-denominated government bonds and currency stabilization bonds purchased by foreigners, for which the Korean government and the BOK has ample repayment capacity.The remainder consists of $3.3 billion in foreign currency-denominated FX equilibrium bonds, $3.4 billion in public loans, etc. (i.e. long-term external debts that pose little risk). B. Banking SectorForeign debts without any repayment burdens incurred from shipbuilders' currency hedging, etc. account for 44.6%, or approx. $93.8 billion, of the external banking sector debt. Foreign debts incurred by domestic branches of foreign banks from their headquarters abroad are very low-risk compared with those of Korean banks.* Foreign bank branches hold 43.1% of total external banking sector debts, and 57.7% of short-term debts.We are applying stringent criteria for FX liquidity to domestic banks than observed in other countries; hence, our current FX liquidity level remains stable.* Develope
-
Oct 10, 2008
- Key Issues on Korean Economy
- This document is prepared with the purpose to explain the following key issues on Korean economy.- External Debt- Foreign exchange reserve- Export- Current Account Balance- Korean Banks- FX Liquidity- Policy Responses 1. External Debt □ (Size) The ratio of external debt to GDP stands at 39% as of late 2007, which is lower than that of major developed economies1) and tolerable given the size of our economy.□ (Nature) Recent growth of external debt in Korea has risen as a counterpart to hedging activities undertaken by shipbuilders and overseas investors.ㅇ This is in stark contrast to massive foreign currency short-term borrowings induced for excessive investment by Korean Chaebols that led to the 1997 financial crisis.ㅇ As of June 2008, $152 billion out of $420 billion external debt are free of repayment burden, making the size of foreign debt with repayment burden reduced to $268 billion.ㅇ In addition, 22% of the total external debt (45% of short-term external debt) belongs to local branches of foreign banks, which makes it unfitting to be regarded as net external debt.ㅇ The IMF expressed that today's foreign debt increase in Korea not as risky as in the past. (08. 6.24, IMF Annual Consultation)1) the ratio of external debt to GDP as end of 2006 : UK(394%), Germany(144%), US(85%), Japan(35%) 2. Foreign exchange reserve□ (Size) Korea holds the 6th largest foreign exchange reserve in the world, which is deemed adequate.ㅇ The size is well beyond the IMF guideline, which is a global reference for the adequate size of FX reserve.2)ㅇ The IMF(Sep.4) and Fitch(July.16), a global credit rating agency, affirmed that Korea's reserve was sufficient.□ (Composition) Korea's reserve is composed of assets with low risk such as deposits, sovereign bonds, federal agency securities and supernational bonds.ㅇ As of September 2008, the total of $240 billion reserve can be cashed in immediately.2) IMF guideline for adequate FX reserve is a total of 3-month current pa
-
Oct 09, 2008
-
Jun 02, 2008
- The Plan for Privatization of KDB and Establishment of KDF
- Ⅰ. Purpose◇ Privatization of KDB is not intended for restructuring of public companies. It is a progressive strategy to develop the financial industry into a new growth engine by turning it into a high value-added industry.◇ Korea Development Fund (KDF), an advanced market-friendly policy financing vehicle to be established with funds from KDB's privatization, will support promising SMEs. - The privatization initiative provides the optimal solution to realizing the national agenda of nurturing a competitive CIB (corporate and investment bank).ㅇ By combining KDB, which has a strong corporate bankingcapacity, with Daewoo Securities, Korea's leadingsecurities house, the foundation will be laid to secure a competitive investment bank.ㅇ Advancement of innovative value-added industries will take place by securing a competitive investment bank, which will act as a core intermediary of the capital market.* An investment bank that provides risk capital to innovative industries, which will be central to the future Korean economy, is a must. - The privatization of KDB will trigger reorganizationand further advancement of the financial industry.ㅇ Domestic financial institutions typically stay complacent in the limited domestic market, maintaining their retail banking-focused revenue structure.* Currently, competitiveness of domestic banks and securities firms is limited as they concentrate on retail-banking and brokerage fees, respectively.* Overseas assets of leading global investment banks are over 50% of their total assets (e.g. Citi: 51%, HSBC: 56%, UBS: 91%). Yet, the average figure for domestic banks in 2006 was only 2.5%.ㅇ KDBH itself will actively seek MA opportunities to develop into a global investment bank through diversification of revenue structure and expansion of overseas business. By presenting new business models, it will act as a benchmark for other financial institutions. ⇨ This will provide domestic financial institutions with a new impetus a
-
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
-
May 17, 2007
-
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
-
Feb 01, 2007
- FSS to Launch Electronic Foreign Investor Registration and English DART Website
- The Financial Supervisory Service will launch an electronic registration system for foreign investors and open an English DART website (http://enlgishdart.fss.or.kr) as part of an ongoing effort to simplify foreign investors’ investment procedures and improve their access to corporate information. DART, which stands for Data Analysis, Retrieval, and Transfer, is the FSS electronic disclosure system companies use to transmit regulatory filings and ongoing disclosures via the Internet.Electronic Registration of Foreign InvestorsUnder the current procedure, a foreign investor (or an agent) who wishes to acquire shares of listed companies and other exchange-traded securities submits an investment registration application along with the supporting documents to the FSS in person and returns three to four days later for the registration certificate.The new registration system, which is set to begin in May this year, will enable foreign investors to file investment registration applications and receive registration certificates electronically through financial institutions acting as their agents.Because the system utilizes information and telecommunication networks and electronic document exchange systems already used by financial institutions, no additional cost is expected from foreign investors or financial institutions. With electronic registration, the issuance of registration certificate, which numbers about 2,000 a year, is expected to be shortened from up to four days to no more than four hours.Opening of English DART WebsiteThe FSS will also open an English DART website (http://englishdart.fss.or.kr) on February 1 to improve foreign investors’ access to disclosures filed by Korea’s publicly traded companies. Foreign investors can use the English DART website to search all English disclosure documents voluntarily transmitted to DART and to Korea Exchange as well as corporate information available in English at Korea Listed Companies Association.The English DAR
-
Mar 13, 2006
-
Jul 29, 2005
- Amended Regulation on Outsourcing by Financial Services Companies Takes Effect July 27, 2005
- The FSC/FSS announced on July 26 that the newly amended Regulation on Business Delegation of Financial Institutions took effect July 27, 2005. The newly amended regulation is a major deregulatory step that significantly broadens the range of activities that can be outsourced by financial services companies and help them utilize outsourcing more efficiently. One of the key changes to be implemented under the amended regulation is a shift from a positive regulatory regime that provides for activities financial services companies may outsource to a negative regulatory regime that provides for activities financial services companies may not outsource. Thus, as a general rule, financial services companies will be allowed to outsource activities unless the regulation specifically provides otherwise. The following is a summary of the newly amended regulation on outsourcing.Expanded outsourcing by financial services companies• Adoption of negative regulatory regime for outsourcingAs a rule, outsourcing is to be allowed for financial services companies unless the activity to be outsourced (i) constitutes a part of the core business activities of the financial service company; (ii) is mandated under the law to the financial service company, or (iii) poses risk to the soundness of the financial services company, undermines orderly conduct of their business, or causes consumer harm. In addition, the core business activities of financial services companies are specifically provided for so that non-core activities may be outsourced without undue discretionary intrusion from the regulators.• Back-office support activitiesThe amended regulation newly defines outsourcing as utilizing the services or the facility of a third party in order to perform financial services activities approved by the FSC/FSS and provides that outsourcing encompasses the back-office and other support activities of financial services companies. As a general rule, outsourcing is to be allowed for back-off
-
Sep 23, 2004
-
Apr 15, 2002
- Removal of 5 Banks from Prompt Corrective Action (PCA)
- During the second phase of financial restructuring in the latter half of 2000, the government and FSC/FSS provided and pursued management normalization plans for eight banks under PCA (Korea Exchange, Chohung, Hanvit, Peace Bank of Korea, Cheju, Kyongnam, Kwangju and Seoul) based on the evaluation results of the ad hoc management evaluation committee. Following a recent evaluation of these banks’ performance since the plans were implemented – excluding Peace Bank, whose banking business was merged into Hanvit Bank in late 2001 – the FSC/FSS concluded 5 of these banks would be removed from PCA. As part of their normalization plans, 6 of the 8 banks excluding Korea Exchange Bank and Chohung Bank underwent a complete capital reduction. Afterward, they were injected with a second round of public funds in the form of equity participation in December 2000 and capital contributions in September 2001, totaling 7.1 trillion won. As a result of the second phase of restructuring in the banking sector, management performance of these banks such as financial soundness significantly improved through injection of public funds and self-restructuring efforts. A foundation of “clean banks” has been established through clearance of large amounts of ailing assets, and stabilization of financial markets and restoration of the intermediary function of financial companies have contributed to the recovery of the real economy. The evaluation of the 8 banks’ overall performance as of the end of 2001 by the FSC/FSS included a comprehensive review of these banks’ satisfaction of the basic requirements for removal from PCA such as a minimum BIS capital adequacy ratio of 8% and a grade 3 or higher on the CAMELS evaluation, as well as their management improvements such as advancements in corporate governance and introduction of a risk management system. The FSC/FSS concluded from the evaluation results that 5 banks (Korea Exchange, Chohung, Hanvit, Kyungnam and Kwangju) would be rem
-
Mar 20, 2001
- Response to News Media Reports Concerning Financial Aid to Hyundai Group
- In response to several news media reports that the decision by Hyundai creditor banks to provide additional liquidity support to Hyundai Electronics Industries Co. (HEI), Hyundai Engineering and Construction Co. (HEC), and other Hyundai subsidiaries amounted to the granting of special favors to the Hyundai Group, the FSS verified the following issues with the creditor banks:1. Financial Support to HEI and Progress of Self-Rescue PlanUnder a mutual agreement, the financial support to be provided by the creditor banks to HEI can be divided into loans under credit lines, ordinary loans and credit access, and syndicated loans.During a series of meeting held between late-November 2000 and mid-March 2001, the creditor banks agreed to restore HEI’s credit lines up to previous limits. For ordinary loans and credit access, the creditor banks sought to resolve the liquidity shortages experienced by HEI through extension of debt maturity.However, due to protracted disagreements among several creditor banks over their share of liquidity support, the creditor banks convened an emergency meeting on March 10th in order to resolve their differences and strike a new agreement concerning the portion of liquidity support to be provided by each creditor bank.With regard to the syndicated loan that was lead-managed by Citibank and announced on November 28, 2000, it should be noted that only KRW 800 billion of the original target of KRW 1 trillion was successfully raised due to the non-participation of several creditor banks. The decision to proceed with raising the remaining KRW 200 billion is entirely up to Citibank as the lead manager of the syndicated loan. The FSSneither participated in the March 10th creditor bank meeting nor engaged in any discussions in regard to the meeting.Meanwhile, the decision by creditor banks to provide liquidity support to HEI was made on the strict condition that it would fully execute the self-rehabilitation plan announced by the Hyundai Group in Janu
-
Mar 13, 2001
- Response to Media Coverage on Hyundai Group Companies
- On Saturday, March 10, creditor banks to the Hyundai Group convened an emergency meeting with executives from Hyundai Electronics Industries, Hyundai Engineering Construction, Hyundai Petrochemical, and Hyundai’s financial advisor, Salomon Smith Barney, in order to discuss liquidity problems facing the Hyundai units and to determine feasible methods to resolve them. During the meeting, the participants reaffirmed the viability of the concerned companies and reviewed the progress of self-rescue plans that are being implemented at each firm. In addition, the creditor banks reaffirmed and finalized each bank’s share of liquidity support to Hyundai subsidiaries, which had been agreed upon a few months ago.At the request of the creditor banks, FSS representatives attended the meeting only to ensure the implementation of follow-up measures by the creditor banks and the Hyundai units, and not to influence the creditor banks or their decision to extend additional credits to the Hyundai companies.1. The purpose of the meeting The purpose of the meeting was to adjust and finalize the already agreed specific share of liquidity support to be assumed by each creditor bank, and to devise a timely implementation plan that could mitigate market uncertainties surrounding the companies; it was not to extend additional loans. Between January and March 2001, the creditor banks had already agreed to raise the purchase limit on export bills (on D/A basis) by US$ 600 million for Hyundai Electronics Co. and to provide US$ 400 million in credit guarantees to Hyundai Engineering and Construction Co. However, both companies have been suffering from liquidity shortages due to disagreements among the creditor banks concerning the relative share of liquidity support that each creditor bank had to assume. 2. The criticism of government interferenceWith respect to the Hyundai Group, the creditor banks voluntarily held numerous meetings in the past and agreed to provide financial support to Hyu
-
Oct 05, 2000
- Potentially Non-viable Corporation Subject to Credit-risk Assessments
- In line with the second phase of financial sector restructuring, the Financial Supervisory Service (FSS) announced that creditor financial institutions will assess the credit risks of potentially non-viable companies, and manage them accordingly. The action is expected to place the long-deferred resolution of ailing companies back on the right track and help restore stability in Korean financial markets by promptly resolving non-viable companies experiencing critical problems such as a liquidity shortage.Companies with outstanding extended credit of 50 billion won or more as of July 31, 2000, will be initially examined. Among these companies, those that fall into one of the following categories will be subject to credit risk assessment: 1) Companies to which loans previously extended are now classified as “precautionary” or lower under FLC evaluation; 2) Companies that have recorded interest coverage ratio of less than 1 for three consecutive years. For those firms that are deemed potentially non-viable under each banks’ specific regulations and guidelines, the creditor banks will determine, regardless of the amount of outstanding extended credit, whether or not to conduct credit risk assessment.A Credit Risk Assessment Committee (CRAC) will be established at each creditor bank in October and will conduct risk assessment under its own guidelines. These guidelines, however, should comprehensively reflect qualitative factors such as industry risk, business risk, management risk, financial risk, and future cash flows. The Committee will be comprised of around 10 members, and should include outside experts while excluding any members who may present a conflict of interest or hold undue influence over the credit decision.From November, creditor banks will group the companies subject to risk assessment into three categories: Companies with normal operation, companies with temporary liquidity problems, and companies with severe liquidity problems. For the first two g
-
Sep 17, 1999
- Terms of Investment Signed for the Sale of Korea First Bank
- The Korean Government and Newbridge Capital Ltd., a U.S. investment firm, reached an agreement on the detailed terms of the transaction of Korea First Bank on September 17, 1999. This Terms of Investment is the binding agreement on major terms and conditions which will be the basis for the definite contract. They had exchanged memoranda of understanding on December 31, 1998. Both parties have expressed their interest in concluding the final contract as soon as possible.The major terms agreed are that Newbridge Capital will invest KRW 500 billion to acquire 51 percent of the shares in Korea First Bank, which are held by the Government, on the condition that the bank shareholders’ equity will be maintained at least at a level equivalent to both 3 percent of total assets and the capital required to meet BIS capital ratio of 10 percent. Newbridge Capital would also invest up to an additional KRW 200 billion in the next 2 years, subject to progress in the management rehabilitation of the bank.As premium for management rights, the Government will have a warrant exercisable on 5 percent of the total shares of the bank after 3 years, which would enable its participation in the future upside potential of the bank to any extent possible. In the meantime, the bank will be protected against losses arising from a deterioration of the existing loans in two ways. First, the Government would purchase the loans should they default during the next 2 years, or 3 years in the case of workout loans, from the closing. Second, the Government would provide the bank with additional reserves for loan losses, which may be incurred from any asset quality deterioration.Throughout the negotiation process, the Government placed an emphasis on the need to preserve the bank’s post-sale operational base and facilitate financial support for the existing corporate customers. Especially in this regard, all loans will be retained by the bank except for non-performing loans as classified according to
-
Mar 05, 1999
- Restructuring the Life Insurance Sector
- In a document released on March 5, 1999, the Financial Supervisory Commission laid out the underlying scheme for restructuring the domestic life insurance sector (total assets of 92.3 trillion won as of Dec. 1998). The following summarizes some of the important features.Progress to dateInitial round of restructuring of the life insurance sector carried out in August, 1998 entailed the following measures ;- Business suspension and exit (4 cos.) ; Kukje, BYC, Taeyang, Coryo- Mandatory submission of management improvement implementation plans (7 cos.) ; Josun, Dongah, Kookmin, Hankuk, Handuk, Pacific, Doowon- Mandatory submission of LOI (7 cos.) ; Hanil, Shinhan, Hansung, Daishin, Tongyang, SK, KumhoBased on 1998 year-end results, among the 14 life insurance companies that were subject to management submission of management improvement implementation plans and LOIs, 10 companies were found to not have implemented plans as originally scheduled and were asked to promptly come up with ways to complete implementation (Jan 18 - Feb 18, 1999). It was conluded that a large number of these companies were suffering from huge losses and with deterioration in management performance of recent registered significant shortfall in solvency margin.In February, 1999 due diligence was conducted on 14 companies that were subject to further management improvement and based on these results specific companies to be placed under restructuring schemes were identified.Future TasksWithout the resolution of ailing life insurance companies, problems in the sector will only worsen and require increasingly more public funds. Although voluntary MAs within the domestic market along side takeovers by international buyers are seen as the ideal way to approach the problem, as most of the companies are under severe distress the likelihood of any voluntary consolidation is dismal and thus sell-offs to international buyers will be the main vehicle to be used.The underlying principle for the follow-up stag
-
Dec 17, 1998
- Features about the new Cho Hung Bank
- 101 years young, Cho Hung Bank announced this morning a definitive agreement to merge with two Korean financial institutions, Kangwon Bank and Hyundai International Merchant Bank to form a new business entity.- Reborn as a Clean and Best BankGiven the government's expected capital injection to the Bank upon the amalgamation of the three institutions, and the enhanced management efficiencies through recent man-power reductions, drastic network consolidation and H.O. organization slim-down, the Bank will be reborn as a sound financial services group in Korea.The Bank, which has already lowered its NPL ratio to 5.2% from 10.8% by the bulk sale of non-performing loans to KAMC (Korea Asset Management Corporation), has a firm belief in the restoration of its former strong position among other financial institutions through the maximized synergy effects flowing from the merger within a short time frame.- Leading peers in sizeWith assets of over Won 62 trillion and Won 2.5 trillion in equity, the combined entity will be one of the largest banking establishments in Korea and, through the merger with a merchant banking institution, will be able to expand its deposit base and expertise in such business domains as private banking and investment banking.- Strengthened capital base through foreign capital injectionThe government's promised capital injection to the combined Bank, which is considered to be sufficient to boost the Bank's BIS Capital Adequacy Ratio to over the 10% level, will reactivate the capital inducement negotiations with those foreign financial institutions which have already expressed their keen interest in investing in the Bank. The Bank will have a more advantageous position with those foreign investors as their pre-condition of a government capital injection will have been satisfied.- Other facts about the mergerThe merger ratio will be decided by the respective institutions' net asset values as evaluated by accounting firms and stock prices. Other details
-
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
