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Financial Stability Board’s strong outreach in Global Financial resilience is expected

Korea will be the first emerging economy to host the Financial Stability Board meeting on the 20th of October, 2010. In its third plenary meeting in Basel, Switzerland, the board decided to have the fourth event in Seoul before the G20 summit. Since Korea is also the chair country of upcoming G20 forum, a Financial Services Commission official said that Korea will be able to take the lead in reforming the financial framework.

 The Financial Stability Board (FSB) was established in April 2009 as the successor to the Financial Stability Forum (FSF). The FSF was founded in 1999 by the G7 Finance Ministers and Central Bank Governors to promote stability in the international financial system. Yet, among the leaders of G20 countries, there had been a broad consensus on stronger institutional ground with an expanded membership. And this movement resulted in the creation of FSB, an extended form of FSF. In an attempt to strengthen its effectiveness, financial authorities from the G20 nations, international financial institutions and several global standard setting bodies joined the FSB as the new members. The FSB performs the initiative role to develop and implement strong regulatory, supervisory and other policies in pursuit of financial stability. 

 As a member of FSB, Korea, especially the Bank of Korea and Financial Services Commission came to have an even more crucial role. FSC is involved in FSB Steering Committee which provides operational guidance and sets the agenda in general. So FSC has been trying to boost regular meetings among the FSB leaders and to continue active discussions. One of them was the financial reform conference called “Envisioning a New Financial System: An Emerging Market Perspective” which Dong-Soo Chin, the chairman of FSC held on Sep.2 in Seoul. The conference called attention to the increasing impact of emerging markets to the world economy, paving the way for more balanced participation of emerging countries in the global finance sector.

 

 

(Sep.2th Korea-FSB Financial Reform Conference, taken from Herald Media)

In fact, a decade ago, Korea felt the tremendous pain due to 1997 Asian Financial Crisis. In the wake of 1997 crisis, Korea had no choice but to strongly restructure corporate and financial field, dealing with long-neglected structural problems hidden behind rapid growth. Passing a time of economic revitalization and renewal, Korea learned valuable lessons and now, it is positioned as one of the competitive global economies. This unique experience enables Korea to serve as a potential broker that can bridge the gap between the emerging and the advanced markets.

 Sharing Korea’s pre-experience and know-how, particularly on financial regulation reform, perspectives of emerging economies can be brought into the global reform process. Many experts admit that Asia will be the engine of future global economic growth. In order to make the emerging markets less vulnerable to external shocks, global financial safety net is strongly required and in this sense, international standards will help them free from poor financial infrastructure.

 Currently, a lot of critical financial agenda are on the FSB table. For instance, to enhance transparency among market participants, prudent oversight of capital, liquidity, leverage and risk management is necessary. Along with Basel III, which delineates the rate of bank capital buffer, Bank Levy is considered a possible measure to increase banks’ crisis management capability, although the feasibility of the proposal still remains to be seen. Furthermore, efforts to reduce systemic risk generated by interconnectedness among financial institutions worldwide led to global coordination to devise measures that cover broader range of financial markets and instruments. Systemically important financial institutions will be strictly monitored and the size of “shadow banking” such as hedge funds and off-balance sheet entities will be shrunk. New international controlling standards on hedge funds will emerge and Central Counter Parties will be installed for over-the-counter (OTC) derivatives. In addition, more standardized forms of OTC products will be used and regulation on credit rating agencies will be intensified. 

                                                                                               (Picture from the Korea Times)

The FSB will take up a vital role of making these regulatory reform recommendations to the G20 summit. Once a certain regulatory reform is approved and adopted through the Financial Stability Board and G20 forum, those international standards are to be implemented by each country. Throughout this highly critical process, Korea is anticipated to undertake a number of initiatives to assess each regulation across sectors, identify regulatory gaps and examine related issues, and reflect emerging Asian market perspective. Gearing up for the G20 summit, FSB activities are an important step in facilitating G20 reform agenda. Everyone hopes to see successful outcome from the impending FSB meeting in Seoul.

Lee, Ki Yeon (kiyeon.m.lee@gmail.com)

17. Contingency Plans for Southern Europe’s Financial Crisis

Despite the EU-IMF rescue package deal for Greece, financial markets faltered amid fears that southern European countries’ debt crisis could spread…

Please visit http://www.fsc.go.kr/eng/index.jsp for details.

16. Glodman Sachs case’s impact and Greek’s bailout package

Last week, two major news hit the market. One, SEC’s fraud suit against Goldman Sachs. Second, Greek’s request for EU-IMF bailout package. Both cases cast ‘speculation’ on the potential impact to Korea’s financial market. Please visit http://www.fsc.go.kr/eng/index.jsp for further details.

Impacts of the Goldman Sachs Case on Financial Markets

Impacts of the Goldman Sachs Case on Financial Markets

In 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. Click Here.

15. Moody’s upgraded Korea rating to A1 with stable outlook

15. Moody’s upgraded Korea rating to A1 with stable outlook

Since Sept 2009, Moody’s is the first time to upgrade Korea’s rating among international rating agencies to pre-crisis level. April 14, Moody’s investors service has changes South Kroea’s government bond rating to A1 from A2 and maintains a stable outlook. Also that includes moving the ceiling applied to foreign currency bonds issued in Korea to Aa2 from Aa3 and foreign currency bank-deposits to A1 from A2. To see more, visit at http://www.fsc.go.kr/eng/index.jsp

14. Government Support Measure for Low-income Earners

14. Government Support Measure for Low-income Earners

On-going effort to support low-income earners has been and still is one of the top priorities for the government. To help allay financial burden of those people who are using private lending service companies paying excessively high interest rate, 49% per annum, which is a lingering problem.  FSC will provide 10 trillion won in loans to below-average credit rating holders, with leverate of 5 times of the fund. Also FSC is going to lower the maximum interest rate private lenders can chard from current 49% to 39% within one year. To see more, please visit at visit at http://www.fsc.go.kr/eng/index.jsp